Zinc finger of the cerebellum (Zic) proteins act as classic transcription factors to promote transcription of the Foxd3 gene during neural crest cell specification. Additionally, they can act as co-factors that bind proteins from the T-cell factor/lymphoid enhancing factor (TCF/LEF) family (TCFs) to repress WNT–β-catenin-dependent transcription without contacting DNA. Here, we show that ZIC activity at the neural plate border is influenced by WNT-dependent SUMOylation. In the presence of high canonical WNT activity, a lysine residue within the highly conserved zinc finger N-terminally conserved (ZF-NC) domain of ZIC5 is SUMOylated, which reduces formation of the ZIC–TCF co-repressor complex and shifts the balance towards transcription factor function. The modification is crucial in vivo, as a ZIC5 SUMO-incompetent mouse strain exhibits neural crest specification defects. This work reveals the function of the ZF-NC domain within ZIC, provides in vivo validation of target protein SUMOylation and demonstrates that WNT–β-catenin signalling directs transcription at non-TCF DNA-binding sites. Furthermore, it can explain how WNT signals convert a broad region of Zic ectodermal expression into a restricted region of neural crest cell specification.