Tubby-like protein 3 (TULP3) is required for proper embryonic development in mice. Disruption of mouse Tulp3 results in morphological defects in the embryonic craniofacial regions, the spinal neural tube and the limbs. Here, we show that TULP3 functions as a novel negative regulator of Sonic hedgehog (Shh) signaling in the mouse. In Tulp3 mutants, ventral cell types in the lumbar neural tube, which acquire their identities in response to Shh signaling, are ectopically specified at the expense of dorsal cell types. Genetic epistasis experiments show that this ventralized phenotype occurs independently of Shh and the transmembrane protein Smoothened, but it is dependent on the transcription factor Gli2. The ventralized phenotype is also dependent on the kinesin II subunit Kif3A, which is required for intraflagellar transport and ciliogenesis. In addition, TULP3 is required for proper Shh-dependent limb patterning and for maintaining the correct balance between differentiation and proliferation in the neural tube. Finally, the localization of TULP3 to the tips of primary cilia raises the possibility that it regulates the Hedgehog pathway within this structure.