From early in limb development the transcription factor Gli3 acts to define boundaries of gene expression along the anterior-posterior (AP) axis, establishing asymmetric patterns required to provide positional information. As limb development proceeds, posterior mesenchyme expression of Sonic hedgehog (Shh) regulates Gli3 transcription and post-translational processing to specify digit number and identity. The molecular cascades dependent on Gli3 at later stages of limb development, which link early patterning events with final digit morphogenesis, remain poorly characterised. By analysing the transcriptional consequences of loss of Gli3 in the anterior margin of the E11.5 and E12.5 limb bud in the polydactylous mouse mutant extra-toes (Gli3(Xt/Xt)), we have identified a number of known and novel transcripts dependent on Gli3 in the limb. In particular, we demonstrated that the genes encoding the paired box transcription factor Pax9, the Notch ligand Jagged1 and the cell surface receptor Cdo are dependent on Gli3 for correct expression in the anterior limb mesenchyme. Analysis of expression in compound Shh;Gli3 mutant mouse embryos and in both in vitro and in vivo Shh signaling assays, further defined the importance of Shh regulated processing of Gli3 in controlling gene expression. In particular Pax9 regulation by Shh and Gli3 was shown to be context dependent, with major differences between the limb and somite revealed by Shh bead implantation experiments in the chick. Jagged1 was shown to be induced by Shh in the chick limb and in a C3H10T1/2 cell based signaling assay, with Shh;Gli3 mutant analysis indicating that expression is dependent on Gli3 derepression. Our data have also revealed that perturbation of early patterning events within the Gli3(Xt/Xt) limb culminates in a specific delay of anterior chondrogenesis which is subsequently realised as extra digits.