The cerebellum consists of a highly organized set of folia that are largely generated postnatally during expansion of the granule cell precursor (GCP) pool. Since the secreted factor sonic hedgehog (Shh) is expressed in Purkinje cells and functions as a GCP mitogen in vitro, it is possible that Shh influences foliation during cerebellum development by regulating the position and/or size of lobes. We studied how Shh and its transcriptional mediators, the Gli proteins, regulate GCP proliferation in vivo, and tested whether they influence foliation. We demonstrate that Shh expression correlates spatially and temporally with foliation. Expression of the Shh target gene Gli1 is also highest in the anterior medial cerebellum, but is restricted to proliferating GCPs and Bergmann glia. By contrast, Gli2 is expressed uniformly in all cells in the developing cerebellum except Purkinje cells and Gli3 is broadly expressed along the anteroposterior axis. Whereas Gli mutants have a normal cerebellum, Gli2 mutants have greatly reduced foliation at birth and a decrease in GCPs. In a complementary study using transgenic mice, we show that overexpressing Shh in the normal domain does not grossly alter the basic foliation pattern, but does lead to prolonged proliferation of GCPs and an increase in the overall size of the cerebellum. Taken together, these studies demonstrate that positive Shh signaling through Gli2 is required to generate a sufficient number of GCPs for proper lobe growth.