Cleft palate is among the most common birth defects in humans. Previous studies have shown that Shh signaling plays critical roles in palate development and regulates expression of several members of the forkhead-box (Fox) family transcription factors, including Foxf1 and Foxf2, in the facial primordia. Although cleft palate has been reported in mice deficient in Foxf2, whether Foxf2 plays an intrinsic role in and how Foxf2 regulates palate development remain to be elucidated. Using Cre/loxP-mediated tissue-specific gene inactivation in mice, we show that Foxf2 is required in the neural crest-derived palatal mesenchyme for normal palatogenesis. We found that Foxf2 mutant embryos exhibit altered patterns of expression of Shh, Ptch1, and Shox2 in the developing palatal shelves. Through RNA-seq analysis, we identified over 150 genes whose expression was significantly up- or down-regulated in the palatal mesenchyme in Foxf2-/- mutant embryos in comparison with control littermates. Whole mount in situ hybridization analysis revealed that the Foxf2 mutant embryos exhibit strikingly corresponding patterns of ectopic Fgf18 expression in the palatal mesenchyme and concomitant loss of Shh expression in the palatal epithelium in specific subdomains of the palatal shelves that correlate with where Foxf2, but not Foxf1, is expressed during normal palatogenesis. Furthermore, tissue specific inactivation of both Foxf1 and Foxf2 in the early neural crest cells resulted in ectopic activation of Fgf18 expression throughout the palatal mesenchyme and dramatic loss of Shh expression throughout the palatal epithelium. Addition of exogenous Fgf18 protein to cultured palatal explants inhibited Shh expression in the palatal epithelium. Together, these data reveal a novel Shh-Foxf-Fgf18-Shh circuit in the palate development molecular network, in which Foxf1 and Foxf2 regulate palatal shelf growth downstream of Shh signaling, at least in part, by repressing Fgf18 expression in the palatal mesenchyme to ensure maintenance of Shh expression in the palatal epithelium.