Patterning along the anteroposterior (A-P) axis involves the interplay of s
ecreted and transcription factors that specify cell fates in the mesoderm a
nd neuroectoderm. While FGF and homeodomain proteins have been shown to pla
y different roles in posterior specification, the network coordinating thei
r effects remains elusive, Here we have analyzed the function of Gli zinc-f
inger proteins in mesodermal A-P patterning. We find that Gli2 is sufficien
t to induce ventroposterior development, functioning in the FGF-brachyury r
egulatory loop. Gli2 directly induces brachyury, a gene required and suffic
ient for mesodermal development, and Gli2 is in turn induced by FGF signali
ng. Moreover, the homeobox gene Xhox3, a critical determinant of posterior
development, is also directly regulated by Gli2. Gli3, but not Gli1, has an
activity similar to that of Gli2 and is expressed in ventroposterior mesod
erm after Gli2, These findings uncover a novel function of Gli proteins, pr
eviously only known to mediate hedgehog signals, in the maintenance and pat
terning of the embryonic mesoderm. More generally, our results suggest a mo
lecular basis for an integration of FGF and hedgehog inputs in Gli-expressi
ng cells that respond to these signals.