Lhx1 encodes a LIM homeobox transcription factor that is expressed in the primitive streak, mesoderm and anterior mesendoderm of the mouse embryo. Using a conditional Lhx1 flox mutation and three different Cre deleters, we demonstrated that LHX1 is required in the anterior mesendoderm, but not in the mesoderm, for formation of the head. LHX1 enables the morphogenetic movement of cells that accompanies the formation of the anterior mesendoderm, in part through regulation of Pcdh7 expression. LHX1 also regulates, in the anterior mesendoderm, the transcription of genes encoding negative regulators of WNT signalling, such as Dkk1, Hesx1, Cer1 and Gsc. Embryos carrying mutations in Pcdh7, generated using CRISPR-Cas9 technology, and embryos without Lhx1 function specifically in the anterior mesendoderm displayed head defects that partially phenocopied the truncation defects of Lhx1-null mutants. Therefore, disruption of Lhx1-dependent movement of the anterior mesendoderm cells and failure to modulate WNT signalling both resulted in the truncation of head structures. Compound mutants of Lhx1, Dkk1 and Ctnnb1 show an enhanced head truncation phenotype, pointing to a functional link between LHX1 transcriptional activity and the regulation of WNT signalling. Collectively, these results provide comprehensive insight into the context-specific function of LHX1 in head formation: LHX1 enables the formation of the anterior mesendoderm that is instrumental for mediating the inductive interaction with the anterior neuroectoderm and LHX1 also regulates the expression of factors in the signalling cascade that modulate the level of WNT activity.