The secreted ligand Sonic Hedgehog (Shh) organizes the pattern of cellular differentiation in the ventral neural tube. For the five neuronal subtypes, increasing levels and durations of Shh signaling direct progenitors to progressively more ventral identities. Here we demonstrate that this mode of action is not applicable to the generation of the most ventral cell type, the nonneuronal floor plate (FP). In chick and mouse embryos, FP specification involves a biphasic response to Shh signaling that controls the dynamic expression of key transcription factors. During gastrulation and early somitogenesis, FP induction depends on high levels of Shh signaling. Subsequently, however, prospective FP cells become refractory to Shh signaling, and this is a prerequisite for the elaboration of their identity. This prompts a revision to the model of graded Shh signaling in the neural tube, and provides insight into how the dynamics of morphogen signaling are deployed to extend the patterning capacity of a single ligand. In addition, we provide evidence supporting a common scheme for FP specification by Shh signaling that reconciles mechanisms of FP development in teleosts and amniotes.