Differential gene regulation integrated in time and space drives developmental programs during embryogenesis. To understand how the program of gastrulation is regulated by Wnt/beta-catenin signaling, we have used genome-wide expression profiling of conditional beta-catenin mutant embryos. Known Wnt/beta-catenin target genes, known components of other signaling pathways, as well as a number of uncharacterized genes were downregulated in these mutants. To further narrow down the set of differentially expressed genes, we used whole-mount in situ screening to associate gene expression with putative domains of Wnt activity. Several potential novel target genes were identified by this means and two, Grsf1 and Fragilis2, were functionally analyzed by RNA interference (RNAi) in completely embryonic stem (ES) cell-derived embryos. We show that the gene encoding the RNA-binding factor Grsf1 is important for axial elongation, mid/hindbrain development and axial mesoderm specification, and that Fragilis2, encoding a transmembrane protein, regulates epithelialization of the somites and paraxial mesoderm formation. Intriguingly, the knock-down phenotypes recapitulate several aspects of Wnt pathway mutants, suggesting that these genes are components of the downstream Wnt response. This functional genomic approach allows the rapid identification of functionally important components of embryonic development from large datasets of putative targets.