With regard to hedgehog (Hh) signaling in mammalian development, the majority of research has focused on Gli2 and Gli3 rather than Gli1. This is because Gli1-/- mice do not show any gross abnormalities in adulthood, and no detailed analyses of fetal Gli1-/- mice are available. In this study, we investigated the physiological role of Gli1 in osteogenesis. Histological analyses revealed that bone formation was impaired in Gli1-/- fetuses compared with that in wild-type (WT) fetuses. Gli1-/- perichondrial cells expressed neither runt-related transcription factor 2 (Runx2) nor osterix, master regulators of osteogenesis, in contrast to WT cells. In vitro analyses showed that overexpression of Gli1 upregulated early osteogenesis-related genes in both WT and Runx2-/- perichondrial cells, and Gli1 activated transcription of those genes via its association with their 5' regulatory regions, underlying the function of Gli1 in the perichondrium. Moreover, Gli1-/-;Gli2-/- mice showed more severe phenotypes of impaired bone formation than either Gli1-/- or Gli2-/- mice, and osteoblast differentiation was impaired in Gli1-/-;Gli3-/- perichondrial cells compared with Gli3-/- cells in vitro. These data suggest that Gli1 itself can induce early osteoblast differentiation, at least to some extent, in a Runx2-independent manner. It also plays a redundant role with Gli2 and is involved in the repressor function of Gli3 in osteogenesis. Based on these findings, we propose that Gli1, upon Hh input, functions collectively with Gli2 and Gli3 in osteogenesis.