The caudal homeobox (cdx) gene family is critical for specification of caudal body formation and erythropoiesis. In zebrafish, cdx4 expression is controlled by the Wnt pathway, but the molecular mechanism of this regulation is not fully understood. Here, we provide evidence that Tcf3 suppresses cdx4 expression through direct binding to multiple sites in the cdx4 gene regulatory region. Tcf3 requires corepressor molecules such as Groucho (Gro)/TLE and HDAC1 for activity. Using zebrafish embryos and cultured mammalian cells, we show that the transcription factor E4f1 derepresses cdx4 by dissociating corepressor proteins from Tcf3 without inhibiting its binding to cis-regulatory sites in the DNA. Further, the E3 ubiquitin ligase Lnx2b, acting as a scaffold protein irrespective of its enzymatic activity, counteracts the effects of E4f1. We propose that the modulation of Tcf3 repressor function by E4f1 assures precise and robust regulation of cdx4 expression in the caudal domain of the embryo.