Facial abnormalities in human SHH mutants have implicated the Hedgehog (Hh) pathway in craniofacial development, but early defects in mouse Shh mutants have precluded the experimental analysis of this phenotype. Here, we removed Hh-responsiveness specifically in neural crest cells (NCCs), the multipotent cell type that gives rise to much of the skeleton and connective tissue of the head. In these mutants, many of the NCC-derived skeletal and nonskeletal components are missing, but the NCC-derived neuronal cell types are unaffected. Although the initial formation of branchial arches (BAs) is normal, expression of several Fox genes, specific targets of Hh signaling in cranial NCCs, is lost in the mutant. The spatially restricted expression of Fox genes suggests that they may play an important role in BA patterning. Removing Hh signaling in NCCs also leads to increased apoptosis and decreased cell proliferation in the BAs, which results in facial truncation that is evident by embryonic day 11.5 (E11.5). Together, our results demonstrate that Hh signaling in NCCs is essential for normal patterning and growth of the face. Further, our analysis of Shh-Fox gene regulatory interactions leads us to propose that Fox genes mediate the action of Shh in facial development.