The signals that promote regional growth and development of the brain are not well understood. Sonic hedgehog (Shh) is produced by Purkinje cells of the cerebellum and is a potent inducer of granule cell proliferation. Here, we demonstrate that Shh protein is present in the murine cerebellum during late stages of embryogenesis and is associated with Purkinje cell bodies and their processes. To better determine the role of Shh during cerebellar development, we genetically removed Shh activity specifically from Purkinje cells and the cerebellar anlage of the mouse embryo. We show that Shh is required for expansion of the granule neuron precursor population, but not for the subsequent differentiation of these cells. In addition, the loss of Shh activity influences Purkinje cell development and the formation of folia in the cerebellum. A role for Shh in compartmentalization of the cerebellum is also suggested by the more severe rostral defects observed in the absence of Hedgehog signaling. Together, these findings provide additional evidence for Shh's key regulatory role in controlling growth of the cerebellar primordium.