The Shh signaling pathway is required in many mammalian tissues for embryonic patterning, cell proliferation and differentiation. In addition, inappropriate activation of the pathway has been implicated in many human tumors. Based on transfection assays and gain-of-function studies in frog and mouse, the transcription factor Gli1 has been proposed to be a major mediator of Shh signaling. To address whether this is the case in mouse, we generated a Gli1 null allele expressing lacZ. Strikingly, Gli1 is not required for mouse development or viability. Of relevance, we show that all transcription of Gli1 in the nervous system and limbs is dependent on Shh and, consequently, Gli1 protein is normally not present to transduce initial Shh signaling. To determine whether Gli1 contributes to the defects seen when the Shh pathway is inappropriately activated and Gli1 transcription is induced, Gli1;Ptc double mutants were generated. We show that Gli1 is not required for the ectopic activation of the Shh signaling pathway or to the early embryonic lethal phenotype in Ptc null mutants. Of significance, we found instead that Gli2 is required for mediating some of the inappropriate Shh signaling in Ptc mutants. Our studies demonstrate that, in mammals, Gli1 is not required for Shh signaling and that Gli2 mediates inappropriate activation of the pathway due to loss of the negative regulator Ptc.