Wnt factors are involved in the regulation of all steps of cartilage development. The activity of Wnt factors is generally regulated at the extracellular level by factors like the Dkk family, sFRPs, Cerberus and Wnt inhibitory factor 1 (Wif-1). Here we report that Wif-1 is highly expressed at cartilage-mesenchyme interfaces of the early developing skeleton. In fetal and postnatal skeletal development, Wif-1 is expressed in a sharply restricted zone in the upper hyaline layer of epiphyseal and articular cartilage and in trabecular bone. Coimmunoprecipitation and pull-down assays using recombinant Wif-1 and Wnt factors show specific binding of Wif-1 to Wnt3a, Wnt4, Wnt5a, Wnt7a, Wnt9a and Wnt11. Moreover, Wif-1 was able to block Wnt3a-mediated activation of the canonical Wnt signalling pathway. Consequently, Wif-1 impaired growth of mesenchymal precursor cells and neutralised Wnt3a-mediated inhibition of chondrogenesis in micromass cultures of embryonic chick limb-bud cells. These results identify Wif-1 as a novel extracellular Wnt modulator in cartilage biology.