During coordinated development of two neighboring organs from the same germ layer, how precursors of one organ resist the inductive signals of the other to avoid being misinduced to wrong cell fate remains a general question in developmental biology. The liver and anterior intestinal precursors located in close proximity along the gut axis represent a typical example. Here we identify a zebrafish leberwurst (lbw) mutant with a unique hepatized intestine phenotype, exhibiting replacement of anterior intestinal cells by liver cells. lbw encodes the Cdx1b homeoprotein, which is specifically expressed in the intestine, and its precursor cells. Mechanistically, in the intestinal precursors, Cdx1b binds to genomic DNA at the regulatory region of secreted frizzled related protein 5 (sfrp5) to activate sfrp5 transcription. Sfrp5 blocks the mesoderm-derived, liver-inductive Wnt2bb signal, thus conferring intestinal precursor cells resistance to Wnt2bb. These results demonstrate that the intestinal precursors avoid being misinduced toward hepatic lineages through the activation of the Cdx1b-Sfrp5 cascade, implicating Cdx/Sfrp5 as a potential pharmacological target for the manipulation of intestinal-hepatic bifurcations, and shedding light on the general question of how precursor cells resist incorrect inductive signals during embryonic development.