Cleft lip is one of the most common human birth defects, yet our understanding of the mechanisms that regulate lip morphogenesis is limited. Here, we show that Sonic Hedgehog (Shh)-induced proliferation of cranial neural crest cell (cNCC) mesenchyme is required for upper lip closure. Gene expression profiling revealed a subset of Forkhead box (Fox) genes regulated by Shh signaling during lip morphogenesis. During cleft pathogenesis, reduced proliferation in the medial nasal process mesenchyme paralleled the domain of reduced Foxf2 and Gli1 expression. SHH ligand induction of Foxf2 expression was dependent upon Shh pathway effectors in cNCCs, while a functional GLI binding site was identified downstream of Foxf2. Consistent with the cellular mechanism demonstrated for cleft lip pathogenesis, we found that either SHH ligand addition or FOXF2 overexpression is sufficient to induce cNCC proliferation. Finally, analysis of a large multi-ethnic human population with cleft lip identified clusters of single-nucleotide polymorphisms in FOXF2. These data suggest that direct targeting of Foxf2 by Shh signaling drives cNCC mesenchyme proliferation during upper lip morphogenesis, and that disruption of this sequence results in cleft lip.