Distal limb development and specification of digit identities in tetrapods are under the control of a mesenchymal organizer called the polarizing region. Sonic Hedgehog (SHH) is the morphogenetic signal produced by the polarizing region in the posterior limb bud. Ectopic anterior SHH signaling induces digit duplications and has been suspected as a major cause underlying congenital malformations that result in digit polydactyly. Here, we report that the polydactyly of Gli3-deficient mice arises independently of SHH signaling. Disruption of one or both Gli3 alleles in mouse embryos lacking Shh progressively restores limb distal development and digit formation. Our genetic analysis indicates that SHH signaling counteracts GLI3-mediated repression of key regulator genes, cell survival, and distal progression of limb bud development.