Regionalization of the neural plate and the early neural tube is controlled by several signaling centers that direct the generation of molecularly distinct domains. In the developing telencephalon, the anterior neural ridge (ANR) and the roof and floor plate act as such organizing centers via the production of Fgfs, Bmps/Wnts, and Shh, respectively. It remains largely unknown, however, how the combination of these different signals is used to coordinate the generation of different telencephalic territories. In the present study, we report on telencephalic development in Pdn mutant mice, which carry an integration of a retrotransposon in the Gli3 locus. Homozygous mutant animals are characterized by a partial dorsal-to-ventral transformation of the telencephalon and by an increased size of the septum. On a molecular level, these alterations correlate with a reduction and/or loss of Bmp/Wnt expression and a concomitant expansion of Fgf8 transcription. Finally, we provide evidence that the ectopic activation of Fgf signaling in the dorsal telencephalon provides an explanation for the ventralization of the Gli3 mutant telencephalon as application of Fgf8-soaked beads to dorsal telencephalic explants led to the specific induction and repression of ventral marker and dorsal marker genes, respectively.