Intraflagellar transport (IFT) is an active event in which cargo is transported along microtubules by motor proteins such as kinesin and dynein. IFT proteins are required for the formation and maintenance of flagella and cilia. We have previously shown that mouse mutants for two IFT proteins, IFT88 and IFT172, as well as Kif3a, a subunit of mouse kinesin 2, exhibit ventral spinal cord patterning defects that appear to result from reduced hedgehog(Hh) signaling. Although genetic epistasis experiments place IFT proteins downstream of the Hh receptor and upstream of the Gli transcription factors,the mechanism by which IFT regulates Gli function is unknown.The developing limb provides an excellent system to study Hh signaling, in particular as it allows a biological and molecular readout of both Gli activator and repressor function. Here we report that homozygous mutants for flexo (Fxo), a hypomorphic allele of mouse IFT88 generated in our ENU mutagenesis screen, exhibit polydactyly in all four limbs. Molecular analysis indicates that expression domains of multiple posteriorly restricted genes are expanded anteriorly in the mutant limbs, similar to loss of Gli3 transcriptional repressor function. Sonic hedgehog (Shh) expression is normal, yet Ptch1 and Gli1, two known targets of Hh signaling, are greatly reduced, consistent with loss of Shh signaling. Expression of Gli3 and Hand2 in the mutant limb indicates that the limb prepattern is abnormal. In addition, we show that partial loss-of-function mutations in another mouse IFT gene, Ift52(Ngd5), result in similar phenotypes and abnormal Hh signaling as Fxo, indicating a general requirement for IFT proteins in Hh signaling and patterning of multiple organs. Analysis of Ift88 and Shh double mutants indicates that, in mouse, IFT proteins are required for both Gli activator and repressor functions, and Gli proteins are insensitive to Hh ligand in the absence of IFT proteins. Finally, our biochemical studies demonstrate that IFT proteins are required for proteolytic processing of Gli3 in mouse embryos. In summary, our results indicate that IFT function is crucial in the control of both the positive and negative transcriptional activities of Gli proteins, and essential for Hh ligand-induced signaling cascade.