Beta-catenin plays a pivotal role in cadherin-mediated cell adhesion. Moreover, it is a downstream signaling component of Wnt that controls multiple developmental processes such as cell proliferation, apoptosis, and fate decisions. To study the role of beta-catenin in neural crest development, we used the Cre/loxP system to ablate beta-catenin specifically in neural crest stem cells. Although several neural crest-derived structures develop normally, mutant animals lack melanocytes and dorsal root ganglia (DRG). In vivo and in vitro analyses revealed that mutant neural crest cells emigrate but fail to generate an early wave of sensory neurogenesis that is normally marked by the transcription factor neurogenin (ngn) 2. This indicates a role of beta-catenin in premigratory or early migratory neural crest and points to heterogeneity of neural crest cells at the earliest stages of crest development. In addition, migratory neural crest cells lateral to the neural tube do not aggregate to form DRG and are unable to produce a later wave of sensory neurogenesis usually marked by the transcription factor ngn1. We propose that the requirement of beta-catenin for the specification of melanocytes and sensory neuronal lineages reflects roles of beta-catenin both in Wnt signaling and in mediating cell-cell interactions.