Members of both the Wnt and bone morphogenetic protein (BMP) families of signaling molecules have been implicated in the regulation of cartilage development. A key component of the Wnt signaling pathway is the cytosolic protein, β-catenin. We have recently shown that the chondrogenic activity of BMP-2 in vitro involves the action of the cell–cell adhesion protein, N-cadherin, which functionally complexes with β-catenin. The aim of this study is to test the hypothesis that Wnts may be involved in BMP-2 induced chondrogenesis, using an in vitro model of high-density micromass cultures of the murine multipotent mesenchymal cell line, C3H10T1/2. Expression of a number of Wnt members was detected in these cultures, including Wnt-3A and Wnt-7A, whose levels were up- and downregulated, respectively, by BMP-2. To assess the functional involvement of Wnt signaling in BMP-2 induced chondrogenesis, cultures were treated with lithium chloride, a Wnt-7A mimetic that acts by inhibiting the serine/threonine phosphorylation activity of glycogen synthase kinase-3β (GSK-3β). Lithium treatment significantly inhibited BMP-2 stimulation of chondrogenesis as well as GSK-3β enzymatic activity, and decreased the levels of N-cadherin protein and mRNA. Furthermore, lithium decreased BMP-2 upregulation of total and nuclear levels of LEF-1 and β-catenin as well as their interaction during later chondrogenesis; similarly, the interaction of β-catenin with N-cadherin was also decreased. Interestingly, lithium treatment did not affect the ability of BMP-2 to decrease ubiquitination of β-catenin, although it did reduce the interaction of β-catenin with GSK-3β during late chondrogenesis (days 9–13). We suggest that the chondro-inhibitory effect of lithium on BMP-2 induced chondrogenesis indicates antagonism between lithium-like Wnts and BMP-2 during mesenchymal condensation. J. Cell. Biochem. 84: 816–831, 2002. © 2002 Wiley-Liss, Inc.