Primary cilia are important sites of signal transduction involved in a wide range of developmental and postnatal functions. Proteolytic processing of the transcription factor Gli3, for example, occurs in primary cilia, and defects in intraflagellar transport (IFT), which is crucial for the maintenance of primary cilia, can lead to severe developmental defects and diseases. Here we report an essential role of primary cilia in forebrain development. Uncovered by N-ethyl-N-nitrosourea-mutagenesis, cobblestone is a hypomorphic allele of the IFT gene Ift88, in which Ift88 mRNA and protein levels are reduced by 70-80%. cobblestone mutants are distinguished by subpial heterotopias in the forebrain. Mutants show both severe defects in the formation of dorsomedial telencephalic structures, such as the choroid plexus, cortical hem and hippocampus, and also a relaxation of both dorsal-ventral and rostral-caudal compartmental boundaries. These defects phenocopy many of the abnormalities seen in the Gli3 mutant forebrain, and we show that Gli3 proteolytic processing is reduced, leading to an accumulation of the full-length activator isoform. In addition, we observe an upregulation of canonical Wnt signaling in the neocortex and in the caudal forebrain. Interestingly, the ultrastructure and morphology of ventricular cilia in the cobblestone mutants remains intact. Together, these results indicate a critical role for ciliary function in the developing forebrain.