Holoprosencephaly (HPE) is a severe human genetic disease affecting craniofacial development, with an incidence of up to 1/250 human conceptions and 1.3 per 10,000 live births. Mutations in the Sonic Hedgehog (SHH) gene result in HPE in humans and mice, and the Shh pathway is targeted by other mutations that cause HPE. However, at least 12 loci are associated with HPE in humans, suggesting that defects in other pathways contribute to this disease. Although the TGIF1 (TG-interacting factor) gene maps to the HPE4 locus, and heterozygous loss of function TGIF1 mutations are associated with HPE, mouse models have not yet explained how loss of Tgif1 causes HPE. Using a conditional Tgif1 allele, we show that mouse embryos lacking both Tgif1 and the related Tgif2 have HPE-like phenotypes reminiscent of Shh null embryos. Eye and nasal field separation is defective, and forebrain patterning is disrupted in embryos lacking both Tgifs. Early anterior patterning is relatively normal, but expression of Shh is reduced in the forebrain, and Gli3 expression is up-regulated throughout the neural tube. Gli3 acts primarily as an antagonist of Shh function, and the introduction of a heterozygous Gli3 mutation into embryos lacking both Tgif genes partially rescues Shh signaling, nasal field separation, and HPE. Tgif1 and Tgif2 are transcriptional repressors that limit Transforming Growth Factor β/Nodal signaling, and we show that reducing Nodal signaling in embryos lacking both Tgifs reduces the severity of HPE and partially restores the output of Shh signaling. Together, these results support a model in which Tgif function limits Nodal signaling to maintain the appropriate output of the Shh pathway in the forebrain. These data show for the first time that Tgif1 mutation in mouse contributes to HPE pathogenesis and provide evidence that this is due to disruption of the Shh pathway.