Cranial nerves govern sensory and motor information exchange between the brain and tissues of the head and neck. The cranial nerves are derived from two specialized populations of cells, cranial neural crest cells and ectodermal placode cells. Defects in either cell type can result in cranial nerve developmental defects. Although several signaling pathways are known to regulate cranial nerve formation our understanding of how intercellular signaling between neural crest cells and placode cells is coordinated during cranial ganglia morphogenesis is poorly understood. Sonic Hedgehog (Shh) signaling is one key pathway that regulates multiple aspects of craniofacial development, but whether it co-ordinates cranial neural crest cell and placodal cell interactions during cranial ganglia formation remains unclear. In this study we examined a new Patched1 (Ptch1) loss-of-function mouse mutant and characterized the role of Ptch1 in regulating Shh signaling during cranial ganglia development. Ptch1(Wig/Wig) mutants exhibit elevated Shh signaling in concert with disorganization of the trigeminal and facial nerves. Importantly, we discovered that enhanced Shh signaling suppressed canonical Wnt signaling in the cranial nerve region. This critically affected the survival and migration of cranial neural crest cells and the development of placodal cells as well as the integration between neural crest and placodes. Collectively, our findings highlight a novel and critical role for Shh signaling in cranial nerve development via the cross regulation of canonical Wnt signaling.