Specification of distinct neuron types in the ventral spinal cord is thought to be mediated by a graded concentration of Sonic hedgehog (Shh), a secreted signaling protein. Shh is made in the notochord, the most ventral part of the spinal cord, and in mice lacking Shh, ventral cell types are reduced or absent. The response to Shh depends on transcription factors of the Gli family, but the detailed mechanism is not understood. Here we show that Gli3 represses ventral fates in a dose-dependent manner. Whereas Shh−/− mutant mice show reductions in several classes of ventral interneurons and a complete absence of motor neurons, these cell types were rescued in Shh−/−; Gli3−/− double mutants. This rescue of the Shh null phenotype depended on the level of Gli3 function; a partial rescue was observed in Shh−/−; Gli3+/− embryos. We propose that Shh is required to antagonize Gli3, which would otherwise repress ventral fates. Differences between rostral and caudal regions suggest that other signaling molecules—in addition to Shh—may be involved in specifying ventral fates, particularly in the caudal region of the spinal cord.