Drosophila Vestigial is the founding member of a protein family containing a highly conserved domain, called Tondu, which mediates their interaction with members of the TEAD family of transcription factors (Scalloped in Drosophila). In Drosophila, the Vestigial/Scalloped complex controls wing development by regulating the expression of target genes through binding to MCAT sequences. In vertebrates, there are four Vestigial-like genes, the functions of which are still not well understood. Here, we describe the regulation and function of vestigial-like 3 (vgll3) during Xenopus early development. A combination of signals, including FGF8, Wnt8a, Hoxa2, Hoxb2 and retinoic acid, limits vgll3 expression to hindbrain rhombomere 2. We show that vgll3 regulates trigeminal placode and nerve formation and is required for normal neural crest development by affecting their migration and adhesion properties. At the molecular level, vgll3 is a potent activator of pax3, zic1, Wnt and FGF, which are important for brain patterning and neural crest cell formation. Vgll3 interacts in the embryo with Tead proteins but unexpectedly with Ets1, with which it is able to stimulate a MCAT driven luciferase reporter gene. Our findings highlight a critical function for vgll3 in vertebrate early development.