Otic fibrocytes tether the cochlear duct to the surrounding otic capsule but are also critically involved in maintenance of ion homeostasis in the cochlea, thus, perception of sound. The molecular pathways that regulate the development of this heterogenous group of cells from mesenchymal precursors are poorly understood. Here, we identified epithelial Wnt7a and Wnt7b as possible ligands of Fzd-mediated β-catenin (Ctnnb1)-dependent (canonical) Wnt signaling in the adjacent undifferentiated periotic mesenchyme (POM). Mice with a conditional deletion of Ctnnb1 in the POM exhibited a complete failure of fibrocyte differentiation, a severe reduction of mesenchymal cells surrounding the cochlear duct, loss of pericochlear spaces, a thickening and partial loss of the bony capsule and a secondary disturbance of cochlear duct coiling shortly before birth. Analysis at earlier stages revealed that radial patterning of the POM in two domains with highly condensed cartilaginous precursors and more loosely arranged inner mesenchymal cells occurred normally but that proliferation in the inner domain was reduced and cytodifferentiation failed. Cells with mis/overexpression of a stabilized form of Ctnnb1 in the entire POM mesenchyme sorted to the inner mesenchymal compartment and exhibited increased proliferation. Our analysis suggests that Wnt signals from the cochlear duct epithelium are crucial to induce differentiation and expansion of fibrocyte precursor cells. Our findings emphasize the importance of epithelial-mesenchymal signaling in inner ear development.