Signaling by Sonic hedgehog (Shh) represents an important process by which many types of neural progenitor cells become properly organized along the dorsal-ventral axis of the vertebrate neural tube in a concentration-dependent manner. However, the mechanism by which Shh signals are transduced with high fidelity and the relationship between the Shh signaling pathway and other patterning systems remain unclear. Here we focus on the role of FK506-binding protein 8 (FKBP8) in controlling neural cell identity through its antagonism of the Shh pathway. Our data indicate that disruption of FKBP8 function activates the Shh signaling pathway cell-autonomously at a step that is independent of the transmembrane protein Smoothened but dependent on the Gli2 transcription factor. This activation is also dependent on the kinesin-2 subunit Kif3a, a component of the intraflagellar transport (IFT) machinery used to generate cilia. Our data also indicate that non-cell-autonomous effects of the Fkbp8 mutation further contribute to the neural patterning phenotype and suggest that FKBP8 plays an indirect role in promoting Bone morphogenetic protein (BMP) signaling through antagonism of the Shh pathway.