Holoprosencephaly (HPE), a common defect of human forebrain development, is associated with haploinsufficiency for genes encoding Sonic Hedgehog (SHH) pathway components. Clinical expression of HPE is extremely variable, but it is rarely associated with defects in other SHH-dependent structures, such as limbs. Here we report that mice lacking the transmembrane protein Cdo, previously implicated in myogenesis, display HPE with strain-specific severity and without limb defects, modeling human HPE and implicating modifier genes as a cause of variability. Shh target gene expression is reduced in the developing forebrains of Cdo-/- mice, and Cdo positively regulates Shh signaling in vitro. Our data suggest that Cdo enhances pathway activity in multiple ways, including at signal reception and via a parallel mechanism required at the level of Gli transcription factors. Specific Cdo domains required for its promyogenic effect are dispensable for its Shh signaling role, suggesting that Cdo has multiple, independent functions.