Cerebellar granule cells are the most abundant type of neuron in the brain, but the molecular mechanisms that control their generation are incompletely understood. We show that Sonic hedgehog (Shh), which is made by Purkinje cells, regulates the division of granule cell precursors (GCPs). Treatment of GCPs with Shh prevents differentiation and induces a potent, long-lasting proliferative response. This response can be inhibited by basic fibroblast growth factor or by activation of protein kinase A. Blocking Shh function in vivo dramatically reduces GCP proliferation. These findings provide insight into the mechanisms of normal growth and tumorigenesis in the cerebellum.