The ability of neuroepithelial cells to generate a diverse array of neurons is influenced by locally secreted signals. In the spinal cord, Sonic Hedgehog (Shh) is known to induce distinct cell fates in a concentration-dependent manner by regulating the activities of the three Gli transcription factors in neural precursors. However, whether Gli-mediated Shh signaling is also required to induce different cell types in the ventral telencephalon has been controversial. In particular, loss of Shh has little effect on dorsoventral patterning of the telencephalon when Gli3 is also removed. Furthermore, no ventral telencephalic phenotypes have been found in individual Gli mutants. To address this issue, we first characterized Shh-responding ventral telencephalic progenitors between E9.5 and E12.5 and found that they produce neurons migrating to different layers of the cortex. We also discovered a loss of Nkx2.1 and Nkx6.2 expression in two subgroups of progenitors in embryos lacking major Gli activators. Finally, we analyzed the telencephalic phenotypes of embryos lacking all Gli genes and found that the ventral telencephalon was highly disorganized with intermingling of distinct neuronal cell types. Together, these studies unravel a role for Gli transcription factors in mediating Shh signaling to control specification, differentiation and positioning of ventral telencephalic neurons.