Shh-Gli signaling controls cell fates in the developing ventral neural tube by regulating the patterned expression of transcription factors in neural progenitors. However, the molecular mechanisms that limit target gene responses to specific domains are unclear. Here, we show that Wnt pathway inhibitors regulate the threshold response of a ventral Shh target gene, Nkx2.2, to establish its restricted expression in the ventral spinal cord. Identification and characterization of an Nkx2.2 enhancer reveals that expression is directly regulated by positive Shh-Gli signaling and negative Tcf repressor activity. Our data indicate that the dorsal limit of Nkx2.2 is controlled by Tcf4-mediated transcriptional repression, and not by a direct requirement for high-level Shh-Gli signaling, arguing against a simple model based on differential Gli factor affinities in target genes. These results identify a transcriptional mechanism that integrates graded Shh and Wnt signaling to define progenitor gene expression domains and cell fates in the neural tube.