Neural stem cells that continue to produce neurons are retained in the adult hippocampal dentate gyrus. The mechanisms by which embryonic neural progenitors expand and transform into postnatal neural stem cells, an essential process for the continual production of neurons throughout life, remain unknown. We found that radial astrocytes, the postnatal progenitors in the dentate gyrus, failed to develop after embryonic ablation of ciliary genes or Smoothened (Smo), an essential component for Sonic hedgehog (Shh) signaling. Postnatal dentate neurogenesis failed in these mutant mice, and the dentate gyrus became severely hypotrophic. In contrast, expression of a constitutively active Smo (SmoM2-YFP) resulted in a marked expansion of the dentate gyrus. Double-mutant analyses suggested that both wild-type Smo and SmoM2-YFP function through the primary cilia. We conclude that Shh signaling, acting through the primary cilia, has a critical role in the expansion and establishment of postnatal hippocampal progenitors.