The Hedgehog (Hh) signaling pathway regulates development in animals ranging from flies to humans. Although its framework is conserved, differences in pathway components have been reported. A kinesin-like protein, Costal2 (Cos2), plays a central role in the Hh pathway in flies. Knockdown of a zebrafish homolog of Cos2, Kif7, results in ectopic Hh signaling, suggesting that Kif7 acts primarily as a negative regulator of Hh signal transduction. However, in vitro analysis of the function of mammalian Kif7 and the closely related Kif27 has led to the conclusion that neither protein has a role in Hh signaling. Using Kif7 knockout mice, we demonstrate that mouse Kif7, like its zebrafish and Drosophila homologs, plays a role in transducing the Hh signal. We show that Kif7 accumulates at the distal tip of the primary cilia in a Hh-dependent manner. We also demonstrate a requirement for Kif7 in the efficient localization of Gli3 to cilia in response to Hh and for the processing of Gli3 to its repressor form. These results suggest a role for Kif7 in coordinating Hh signal transduction at the tip of cilia and preventing Gli3 cleavage into a repressor form in the presence of Hh.