Little is known about the mechanisms that control the development of regional identity in the mammalian telencephalon. The Gli family of transcription factor genes is involved in the regulation of pattern at many sites in the embryo and is expressed in the embryonic mouse telencephalon. We have analyzed telencephalic patterning in the extra-toes (J) (Xt(J)) mouse mutant, which carries a deletion in the Gli family member Gli3. We report that dorsoventral patterning of the telencephalon is dramatically disrupted in the Xt(J) mutant. Specific dorsal telencephalic cell types and gene expression patterns are lost in homozygous Xt(J) mutants, and features of ventral telencephalic identity develop ectopically in the dorsal telencephalon. This partial ventralization of the dorsal telencephalon does not appear to be induced by an expansion of Sonic hedgehog expression in the telencephalon, but may be due to a loss of Bmp and Wnt gene expression in a putative dorsal telencephalic signaling center, the cortical hem. Our findings suggest that in dorsal telencephalon Gli3 is needed to repress ventral telencephalic identity.