Gli proteins regulate the transcription of Hedgehog (Hh) target genes. Genetic studies in mouse have shown that Gli1 is not essential for embryogenesis, whereas Gli2 acts as an activator of Hh target genes. In contrast, misexpression studies in Xenopus and cultured cells have suggested that Gli1 can act as an activator of Hh-regulated genes, whereas Gli2 might function as a repressor of a subset of Hh targets. To clarify the roles of gli genes during vertebrate development, we have analyzed the requirements for gli1 and gli2 during zebrafish embryogenesis. We report that detour (dtr) mutations encode loss-of-function alleles of gli1. In contrast to mouse Gli1 mutants, dtr mutants and embryos injected with gli1 antisense morpholino oligonucleotides display defects in the activation of Hh target genes in the ventral neuroectoderm. Mutations in you-too (yot) encode C-terminally truncated Gli2. We find that these truncated proteins act as dominant repressors of Hh signaling, in part by blocking Gli1 function. In contrast, blocking Gli2 function by eliminating full-length Gli2 results in minor Hh signaling defects and uncovers a repressor function of Gli2 in the telencephalon. In addition, we find that Gli1 and Gli2 have activator functions during somite and neural development. These results reveal divergent requirements for Gli1 and Gli2 in mouse and zebrafish and indicate that zebrafish Gli1 is an activator of Hh-regulated genes, while zebrafish Gli2 has minor roles as a repressor or activator of Hh targets.