Neural stem cells (NSCs) generate new granule cells throughout life in the mammalian hippocampus. Canonical Wnt signaling regulates the differentiation of NSCs towards the neuronal lineage. Here we identified the prospero-related homeodomain transcription factor Prox1 as a target of β-catenin–TCF/LEF signaling in vitro and in vivo. Prox1 overexpression enhanced neuronal differentiation whereas shRNA-mediated knockdown of Prox1 impaired the generation of neurons in vitro and within the hippocampal niche. In contrast, Prox1 was not required for survival of adult-generated granule cells after they had matured, suggesting a role for Prox1 in initial granule cell differentiation but not in the maintenance of mature granule cells. The data presented here characterize a molecular pathway from Wnt signaling to a transcriptional target leading to granule cell differentiation within the adult brain and identify a stage-specific function for Prox1 in the process of adult neurogenesis.