Despite the importance of Wnt signaling for adult intestinal stem cell homeostasis and colorectal cancer, relatively little is known about its role in colon formation during embryogenesis. The development of the colon starts with the formation and extension of the hindgut. We show that Wnt3a is expressed in the caudal embryo in a dorsal-ventral (DV) gradient across all three germ layers including the hindgut. Taking genetic and lineage tracing approaches, we describe novel dorsal and ventral hindgut domains and show that ventrolateral hindgut cells populate the majority of the colonic epithelium. A Wnt3a-β-catenin-Sp5/8 pathway, active in the dorsal hindgut endoderm, is required for hindgut extension and colon formation. Interestingly, the absence of Wnt activity in the ventral hindgut is crucial for proper hindgut morphogenesis as ectopic stabilization of β-catenin in the ventral hindgut via gain, or loss, of function mutations in Ctnnb1 or Apc, respectively, leads to severe colonic hyperplasia. Thus, the DV Wnt gradient is required to coordinate growth between dorsal and ventral hindgut domains to regulate the extension of the hindgut that leads to colon formation.