Abstract Background Several studies have indicated that Sonic hedgehog (Shh) regulates the expansion of dopaminergic (DA) progenitors and the subsequent generation of mature DA neurons. This prevailing view has been based primarily on in vitro culture results, and the exact in vivo function of Shh signaling in the patterning and neurogenesis of the ventral midbrain (vMB) remains unclear. Methods We characterized the transcriptional codes for the vMB progenitor domains, and correlated them with the expression patterns of Shh signaling effectors, including Shh, Smoothened, Patched, Gli1, Gli2 and Gli3. Results While Shh and its downstream effectors showed robust expression in the neurogenic niche for DA progenitors at embryonic day (E)8 to E8.5, their expression shifted to the lateral domains from E9.5 to E12.5. Consistent with this dynamic change, conditional mutants with region-specific removal of the Shh receptor Smoothened in the vMB progenitors (Shh-Cre;Smo fl/fl ) showed a transient reduction in DA progenitors and DA neurons at E10.5, but had more profound defects in neurons derived from the more lateral domains, including those in the red nucleus, oculomotor nucleus, and raphe nuclei. Conversely, constitutive activation of Smoothened signaling in vMB (Shh-Cre;SmoM2) showed transient expansion of the same progenitor population. To further characterize the nature of Shh-Smoothened signaling in vMB, we examined the BAT-GAL reporter and the expression of Wnt1 in vMB, and found that the antagonistic effects of Shh and Wnt signaling critically regulate the development of DA progenitors and DA neurons. Conclusion These results highlight previously unrecognized effects of Shh-Smoothened signaling in the region-specific neurogenesis within the vMB.