Tcf7l2 mediates Wnt/β-Catenin signalling during development and is implicated in cancer and type-2 diabetes. The mechanisms by which Tcf7l2 and Wnt/β-Catenin signalling elicit such a diversity of biological outcomes are poorly understood. Here, we study the function of zebrafish tcf7l2 alternative splice variants and show that only variants that include exon five or an analogous human tcf7l2 variant can effectively provide compensatory repressor function to restore eye formation in embryos lacking tcf7l1a/tcf7l1b function. Knockdown of exon five specific tcf7l2 variants in tcf7l1a mutants also compromises eye formation, and these variants can effectively repress Wnt pathway activity in reporter assays using Wnt target gene promoters. We show that the repressive activities of exon5-coded variants are likely explained by their interaction with Tle co-repressors. Furthermore, phosphorylated residues in Tcf7l2 coded exon5 facilitate repressor activity. Our studies suggest that developmentally regulated splicing of tcf7l2 can influence the transcriptional output of the Wnt pathway.