Differentiation of activated CD4 T cells into T helper (Th) -1 and -2 cell fate is regulated by cytokines and transcription factors T-bet and GATA-3. Whereas it is clear that IL-12 produced by antigen presenting cells initiate Th1 fate, signals that initiate Th2 fate have not been completely characterized. Here we show that Gata-3, an essential transcription factor for Th2 differentiation, is initially induced by T cell factor-1 (TCF-1) and its cofactor beta-catenin, predominantly from the proximal promoter upstream of exon 1b. This activity is induced in CD4 T cells early after T cell receptor stimulation and is independent of IL-4 receptor signaling via STAT-6. Furthermore, we show that TCF-1 blocks Th1 fate by negatively regulating IFNgamma expression, independently of beta-catenin. Thus, our results indicate that TCF1 initiates Th2 differentiation of activated CD4 T cells by a dual mechanism: by promoting Gata-3 expression and suppressing IFNgamma expression.