Abstract The talpid3 chicken mutant has a pleiotropic phenotype including polydactyly and craniofacial abnormalities. Limb polydactyly in talpid3 suggests a gain of Hedgehog (Hh) signaling, whereas, paradoxically, absence of midline facial structures suggests a loss of Hh function. Here we analyze the status of Shh signaling in the talpid3 mutant head. We show that Shh expression domains are lost from the talpid3 head—in hindbrain, midbrain, zona limitans intrathalamica, and stomodeal ectoderm—and that direct targets of Hedgehog signaling, Ptc1, Ptc2, and Gli1, are also absent even in areas associated with primary Shh expression. These data suggest that the talpid3 mutation leads to defective activation of the Shh pathway and, furthermore, that tissue-to-tissue transduction of Shh expression in the developing head depends on Hh pathway activation. Failure to activate the Shh pathway can also explain absence of floor plate and Hnf-3β and Netrin-1 expression in midbrain and hindbrain and absence of Fgf-8 expression in commissural plate. Other aspects of gene expression in the talpid3 head, however, suggest misspecification, such as maintenance of floor plate-like gene expression in telencephalon. In branchial arches and lower jaw, where Shh is expressed, changes in expression of genes involved in patterning and mesodermal specification suggest both gain and loss of Hedgehog function. Thus, analysis of gene expression in talpid3 head shows that, as in talpid3 limb, expression of some genes is lost, while others are ectopically expressed. Unlike the limb, many head regions depend on Hh induction of a secondary domain of Shh expression, and failure of this induction in talpid3, together with the inability to activate the Shh pathway, explain the loss-of-function head phenotype. This gene expression analysis in the talpid3 head also confirms and extends knowledge of the importance of Shh signaling and the balance between activation and repression of Shh targets in many aspects of craniofacial morphogenesis.