Development of the vertebrate gut is controlled by paracrine crosstalk between the endodermal epithelium and the associated splanchnic mesoderm. In the adult, the same types of signals control epithelial proliferation and survival, which account for the importance of the stroma in colon carcinoma progression. Here, we show that targeting murine Foxf1 and Foxf2, encoding forkhead transcription factors, has pleiotropic effects on intestinal paracrine signaling. Inactivation of both Foxf2 alleles, or one allele each of Foxf1 and Foxf2, cause a range of defects, including megacolon, colorectal muscle hypoplasia and agangliosis. Foxf expression in the splanchnic mesoderm is activated by Indian and sonic hedgehog secreted by the epithelium. In Foxf mutants, mesenchymal expression of Bmp4 is reduced, whereas Wnt5a expression is increased. Activation of the canonical Wnt pathway -- with nuclear localization of beta-catenin in epithelial cells -- is associated with over-proliferation and resistance to apoptosis. Extracellular matrix, particularly collagens, is severely reduced in Foxf mutant intestine, which causes epithelial depolarization and tissue disintegration. Thus, Foxf proteins are mesenchymal factors that control epithelial proliferation and survival, and link hedgehog to Bmp and Wnt signaling.