During development, many signaling factors behave as morphogens, long-range signals eliciting different cellular responses according to their concentration. In ventral regions of the spinal cord, Sonic Hedgehog (Shh) is such a signal and controls the emergence, in precise spatial order, of distinct neuronal subtypes. The Gli family of transcription factors plays a central role in this process. Here we demonstrate that a gradient of Gli activity is sufficient to mediate, cell-autonomously, the full range of Shh responses in the neural tube. The incremental two- to threefold changes in Shh concentration, which determine alternative neuronal subtypes, are mimicked by similar small changes in the level of Gli activity, indicating that a gradient of Gli activity represents the intracellular correlate of graded Shh signaling. Moreover, our analysis suggests that cells integrate the level of signaling over time, consistent with the idea that signal duration, in addition to signal strength, is an important parameter controlling dorsal-ventral patterning. Together, these data indicate that Shh signaling is transduced, without amplification, into a gradient of Gli activity that orchestrates patterning of the ventral neural tube.