The correct patterning of vertebrate skeletal elements is controlled by inductive interactions. Two vertebrate hedgehog proteins, Sonic hedgehog and Indian hedgehog, have been implicated in skeletal development. During somite differentiation and limb development, Sonic hedgehog functions as an inductive signal from the notochord, floor plate and zone of polarizing activity. Later in skeletogenesis, Indian hedgehog functions as a regulator of chondrogenesis during endochondral ossification. The vertebrate Gli zinc finger proteins are putative transcription factors that respond to Hedgehog signaling. In Drosophila, the Gli homolog cubitus interruptus is required for the activation of hedgehog targets and also functions as a repressor of hedgehog expression. We show here that Gli2 mutant mice exhibit severe skeletal abnormalities including cleft palate, tooth defects, absence of vertebral body and intervertebral discs, and shortened limbs and sternum. Interestingly, Gli2 and Gli3 (C.-c. Hui and A. L. Joyner (1993). Nature Genet. 3, 241-246) mutant mice exhibit different subsets of skeletal defects indicating that they implement specific functions in the development of the neural crest, somite and lateral plate mesoderm derivatives. Although Gli2 and Gli3 are not functionally equivalent, double mutant analysis indicates that, in addition to their specific roles, they also serve redundant functions during skeletal development. The role of Gli2 and Gli3 in Hedgehog signaling during skeletal development is discussed.