Recent studies have demonstrated that oligodendrocyte progenitor (OLP) cells are induced from the ventral neural tube by the ventral midline signal, Sonic hedgehog (Shh). In this study, we investigated the role of Gli2 signal transducer in Shh induction of oligodendrocytes by studying oligodendrocyte development in Gli2-null mutants. In the absence of Gli2, the Olig1/2+ oligodendrogenic domain in the ventral spinal neuroepithelium is markedly reduced, and the initial production of OLP cells from the ventral neuroepithelium is much decreased and delayed. However, at late gestation stages, there is no discernible difference in the steady-state number of OLPs between the wild type and mutants. Interestingly, the initial delay and reduction of OLP production in the mutants is associated with a delayed expression of myelin-specific genes and oligodendrocyte differentiation. In contrast to oligodendrogenesis in the spinal cord, oligodendrocyte development in the forebrain is unaffected by Gli2 mutation. Together, our studies have suggested that Gli2 plays an important role in regulating oligodendrocyte specification and differentiation in the caudal neural tube.