In both vertebrates and Drosophila, limb development is organized by a posteriorly located source of the signalling protein Hedgehog (Hh)    . In Drosophila, the expression of Hh target genes is controlled by two opposing activities of the transcriptional regulator Cubitus interruptus (Ci), which activates target genes in response to Hh signalling but is converted into a repressor form in the absence of Hh      . Three homologs of Ci (Gli1, Gli2, and Gli3) have been implicated in mediating responses to Sonic hedgehog (Shh) in vertebrates  . Much attention has been devoted to the expression pattern of GLI genes; GLI1 is induced by Shh, whereas GLI3 transcription appears to be repressed by Shh signalling   . The regulation of GLI gene expression is therefore one important mechanism by which GLI genes organize pattern. It is not well understood, however, whether Shh signalling also controls the activities of Gli proteins post-translationally and whether these activities have activating or repressing effects on target genes in vivo. Here, we have subjected the human proteins Gli1 and Gli3 to the precise and well-defined Hh signalling assay of Drosophila wing development and established that Gli1 functions as an activator and Gli3 as a repressor of Hh target genes; that the activating transcriptional activity of Gli1 and the repressing activity of Gli3 are both subject to Hh regulation in vivo; and that the combined activities of Gli1 and Gli3 can substitute for Ci in controlling Hh target gene expression during embryonic and larval development.