Sonic hedgehog (Shh) is a putative morphogen secreted by the floor plate and notochord, which specifies the fate of multiple cell types in the ventral aspect of the vertebrate nervous system. Since in Drosophila the actions of Hh have been shown to be transduced by Cubitus interruptus (Ci), a zinc finger transcription factor, we examined whether a vertebrate homolog of this protein can mediate the functions of Shh in the vertebrate nervous system. Here, we demonstrate that expression of Gli-1, one of three vertebrate homologs of Ci, can be induced by Shh in the neural tube. Further, ectopic expression of Gli-1 in the dorsal midbrain and hindbrain of transgenic mice mimics the effects of ectopically expressed Shh-N, leading to the activation of ventral neural tube markers such as Ptc, HNF-3beta, and Shh; to the suppression of dorsal markers such as Pax-3 and AL-1; and to the formation of ectopic dorsal clusters of dopaminergic and serotonergic neurons. These findings demonstrate that GLI-1 can reproduce the cell patterning actions of Shh in the developing nervous system and provide support for the hypothesis that it is a mediator of the Shh signal in vertebrates.