The phenotype of the spontaneous mutant mouse hop-sterile (hop) is characterized by a hopping gait, polydactyly, hydrocephalus, and male sterility. Previous analyses of the hop mouse revealed a deficiency of inner dynein arms in motile cilia and a lack of sperm flagella, potentially accounting for the hydrocephalus and male sterility. The etiology of the other phenotypes and the location of the hop mutation remained unexplored. Here we show that the hop mutation is located in the Ttc26 gene and impairs Hedgehog (Hh) signaling. Expression analysis showed that this mutation led to dramatically reduced levels of the Ttc26 protein, and protein-protein interaction assays demonstrated that wild-type Ttc26 binds directly to the Ift46 subunit of Intraflagellar Transport (IFT) complex B. Although IFT is required for ciliogenesis, the Ttc26 defect did not result in a decrease in the number or length of primary cilia. Nevertheless, Hh signaling was reduced in the hop mouse, as revealed by impaired activation of Gli transcription factors in embryonic fibroblasts and abnormal patterning of the neural tube. Unlike the previously characterized mutations that affect IFT complex B, hop did not interfere with Hh-induced accumulation of Gli at the tip of the primary cilium, but rather with the subsequent dissociation of Gli from its negative regulator, Sufu. Our analysis of the hop mouse line provides novel insights into Hh signaling, demonstrating that Ttc26 is necessary for efficient coupling between the accumulation of Gli at the ciliary tip and its dissociation from Sufu.