The secreted factor Sonic hedgehog (SHH) is both required for and sufficient to induce multiple developmental processes, including ventralization of the CNS, branching morphogenesis of the lungs and anteroposterior patterning of the limbs. Based on analogy to the Drosophila Hh pathway, the multiple GLI transcription factors in vertebrates are likely to both transduce SHH signaling and repress Shh transcription. In order to discriminate between overlapping versus unique requirements for the three Gli genes in mice, we have produced a Gli1 mutant and analyzed the phenotypes of Gli1/Gli2 and Gli1/3 double mutants. Gli3(xt) mutants have polydactyly and dorsal CNS defects associated with ectopic Shh expression, indicating GLI3 plays a role in repressing Shh. In contrast, Gli2 mutants have five digits, but lack a floorplate, indicating that it is required to transduce SHH signaling in some tissues. Remarkably, mice homozygous for a Gli1(zfd)mutation that deletes the exons encoding the DNA-binding domain are viable and appear normal. Transgenic mice expressing a GLI1 protein lacking the zinc fingers can not induce SHH targets in the dorsal brain, indicating that the Gli1(zfd)allele contains a hypomorphic or null mutation. Interestingly, Gli1(zfd/zfd);Gli2(zfd/+), but not Gli1(zfd/zfd);Gli3(zfd/+) double mutants have a severe phenotype; most Gli1(zfd/zfd);Gli2(zfd/+) mice die soon after birth and all have multiple defects including a variable loss of ventral spinal cord cells and smaller lungs that are similar to, but less extreme than, Gli2(zfd/zfd) mutants. Gli1/Gli2 double homozygous mutants have more extreme CNS and lung defects than Gli1(zfd/zfd);Gli2(zfd/+) mutants, however, in contrast to Shh mutants, ventrolateral neurons develop in the CNS and the limbs have 5 digits with an extra postaxial nubbin. These studies demonstrate that the zinc-finger DNA-binding domain of GLI1 protein is not required for SHH signaling in mouse. Furthermore, Gli1 and Gli2, but not Gli1 and Gli3, have extensive overlapping functions that are likely downstream of SHH signaling.