The Otx2 gene encodes a paired-type homeobox transcription factor that is essential for the induction and the patterning of the anterior structures in the mouse embryo. Otx2 knockout embryos fail to form a head. Whereas previous studies have shown that Otx2 is required in the anterior visceral endoderm and the anterior neuroectoderm for head formation, its role in the anterior mesendoderm (AME) has not been assessed specifically. Here, we show that tissue-specific ablation of Otx2 in the AME phenocopies the truncation of the embryonic head of the Otx2 null mutant. Expression of Dkk1 and Lhx1, two genes that are also essential for head formation, is disrupted in the AME of the conditional Otx2-deficient embryos. Consistent with the fact that Dkk1 is a direct target of OTX2, we showed that OTX2 can interact with the H1 regulatory region of Dkk1 to activate its expression. Cross-species comparative analysis, RT-qPCR, ChIP-qPCR and luciferase assays have revealed two conserved regions in the Lhx1 locus to which OTX2 can bind to activate Lhx1 expression. Abnormal development of the embryonic head in Otx2;Lhx1 and Otx2;Dkk1 compound mutant embryos highlights the functional intersection of Otx2, Dkk1 and Lhx1 in the AME for head formation.