Sonic hedgehog (Shh) signal transduction specifies ventral cell fates in the neural tube and is mediated by the Gli transcription factors that play both activator (GliA) and repressor (GliR) roles. Cilia are essential for Shh signal transduction and the ciliary phosphatidylinositol phosphatase Inpp5e is linked to Shh regulation. In the course of a forward genetic screen for recessive mouse mutants, we identified a functional null allele of inositol polyphosphate-5-phosphatase E (Inpp5e), ridge top (rdg), with expanded ventral neural cell fates at E10.5. By E12.5, Inpp5e^rdg/rdg embryos displayed normal neural patterning and this correction over time required Gli3, the predominant repressor in neural patterning. Inpp5e^rdg function largely depended on the presence of cilia and on smoothened, the obligate transducer of Shh signaling, indicating that Inpp5e functions within the cilium to regulate the pathway. These data indicate that Inpp5e plays a more complicated role in Shh signaling than previously appreciated. We propose that Inpp5e attenuates Shh signaling in the neural tube through regulation of the relative timing of GliA and GliR production, which is important in understanding how the duration of Shh signaling regulates neural tube patterning.