Sonic hedgehog (Shh) is a secreted molecule that is thought to regulate tissue growth and patterning in vertebrate embryos. Although it has been reported that Gli transcription factors mediate Shh signaling to the nucleus, little is known about developmental target genes of Gli. In the previous genetic study, we showed that Shh is required for Fgf15 expression in the diencephalon and midbrain. Here, we examined whether Fgf15 is a direct target of Shh signaling through Gli. Shh was expressed in the midline cells and Fgf15 in the medial region of the diencephalon/midbrain by the seven-somite stage. The Fgf15 expression domain coincided with that of Gli1 and overlapped with that of Gli2 at this stage. Fgf15 expression in the diencephalon/midbrain was greatly reduced in the seven-somite Shh mutant embryos. Transgenic analysis showed that the 3.6-kb 5′-flanking region of the Fgf15 gene is sufficient for induction of Fgf15 in the medial/ventral diencephalon/midbrain. Luciferase assay showed that the 3.6-kb Fgf15 enhancer/promoter was activated by Gli2. A Gli-binding site was located 1 kb upstream of the transcription start site and was required for expression in the medial/ventral diencephalon/midbrain in transgenic embryos and for activation in luciferase assay. These findings indicate that Fgf15 is directly regulated by Shh signaling through Gli proteins. Developmental Dynamics 232:282–292, 2005. © 2004 Wiley-Liss, Inc.