Mutations of the genes encoding APC or beta-catenin in colon carcinoma induce the constitutive formation of nuclear beta-catenin/Tcf-4 complexes, resulting in activated transcription of Tcf target genes. To study the physiological role of Tcf-4 (which is encoded by the Tcf7/2 gene), we disrupted Tcf7/2 by homologous recombination. Tcf7/2-/- mice die shortly after birth. A single histopathological abnormality was observed. An apparently normal transition of intestinal endoderm into epithelium occurred at approximately embryonic day (E) 14.5. However, no proliferative compartments were maintained in the prospective crypt regions between the villi. As a consequence, the neonatal epithelium was composed entirely of differentiated, non-dividing villus cells. We conclude that the genetic program controlled by Tcf-4 maintains the crypt stem cells of the small intestine. The constitutive activity of Tcf-4 in APC-deficient human epithelial cells may contribute to their malignant transformation by maintaining stem-cell characteristics.