Sonic hedgehog (Shh) function is essential for patterning and cell fate specification, particularly in ventral regions of the central nervous system. It is also a crucial mitogen for cerebellar granule neuron precursors and is important in maintenance of the stem cell niche in the postnatal telencephalon. Although it has been reported that Shh is expressed in the developing dorsal telencephalon, functions of Shh in this region are unclear, and detailed characterization of Shh mRNA transcripts in situ has not been demonstrated. To clarify the roles of Shh signaling in dorsal pallium (neocortex primordium) development, we have knocked out the Shh and Smo genes specifically in the early developing dorsal telencephalon by using Emx1cre mice. The mutants showed a smaller dorsal telencephalon at E18.5, which was caused by cell cycle kinetics defects of the neural progenitor/stem cells. The cell cycle length of the progenitor/stem cells was prolonged, and the number of cycle-exiting cells and neurogenesis were decreased. Birth-date analysis revealed abnormal positioning of neurons in the mutants. The characteristics of the subventricular zone, ventricular zone and subplate cells were also affected. Weak immunoreactivity of Shh was detected in the dorsal telencephalon of wild types. Reduced Shh immunoreactivity in mutant dorsal telencephalons supports the above phenotypes. Our data indicate that Shh signaling plays an important role in development of the neocortex.