Cleft lip, which results from impaired facial process growth and fusion, is one of the most common craniofacial birth defects. Many genes are known to be involved in the etiology of this disorder; however, our understanding of cleft lip pathogenesis remains incomplete. In the present study, we uncovered a role for sonic hedgehog (SHH) signaling during lip fusion. Mice carrying compound mutations in hedgehog acyltransferase (Hhat) and patched1 (Ptch1) exhibited perturbations in the SHH gradient during frontonasal development, which led to hypoplastic nasal process outgrowth, epithelial seam persistence, and cleft lip. Further investigation revealed that enhanced SHH signaling restricts canonical WNT signaling in the lambdoidal region by promoting expression of genes encoding WNT inhibitors. Moreover, reduction of canonical WNT signaling perturbed p63/interferon regulatory factor 6 (p63/IRF6) signaling, resulting in increased proliferation and decreased cell death, which was followed by persistence of the epithelial seam and cleft lip. Consistent with our results, mutations in genes that disrupt SHH and WNT signaling have been identified in both mice and humans with cleft lip. Collectively, our data illustrate that altered SHH signaling contributes to the etiology and pathogenesis of cleft lip through antagonistic interactions with other gene regulatory networks, including the canonical WNT and p63/IRF6 signaling pathways.