In the developing spinal cord, early oligodendrocyte progenitor cells are induced from the ventral neural tube by the Sonic hedgehog (Shh) signal. Previous studies suggested that the Gli3 zinc finger transcription factor is an important signal transducer of Shh signaling during animal development. Here, we demonstrated that Gli3 plays a non-essential role in ventral oligodendrogenesis during normal development. However, in the absence of Shh signaling, Gli3 functions as a repressor of ventral oligodendrogenesis and ventral oligodendrogenesis is restored in Shh-/-Gli3-/- mutants. Interestingly, despite a normal production of oligodendrocyte precursor cells in the double mutants, oligodendrocyte differentiation is completely suppressed, implying that Shh signaling plays an important role in the terminal differentiation of oligodendrocytes.