Foxa2, a member of the Foxa family of forkhead/winged helix family of transcription factors, has previously been shown to be an upstream positive regulator of Shh expression in many different tissues. Recent studies also strongly suggest that Foxa2 specify cell fate by inhibiting the expression of cell fate determinants such as Helt1 and Nkx2.2. In this paper, phenotypic analyses of Wnt1cre; Foxa2flox/flox embryos in the midbrain have demonstrated a novel role for Foxa2 and its related family member, Foxa1, to attenuate Shh signalling by inhibiting the expression of its intracellular transducer, Gli2, at the transcriptional level. Chromatin immunoprecipitation experiments indicate that Foxa2 binds to genomic regions of Gli2 and likely regulates its expression in a direct manner. Our studies, involving loss and gain of function studies in mice, also provided further insights into the gene regulatory interactions among Foxa1, Foxa2 and Shh in ventral midbrain progenitors that contribute to midbrain patterning. Altogether, these data indicate that Foxa1 and Foxa2 contribute to the specification of ventral midbrain progenitor identity by regulating Shh signalling in a positive and negative manner.