Holoprosencephaly (HPE) is the most common human congenital forebrain defect, affecting specification of forebrain tissue and subsequent division of the cerebral hemispheres. The causes of HPE are multivariate and heterogeneous, and include exposure to teratogens, such as retinoic acid (RA), and mutations in forebrain patterning genes. Many of the defects in holoprosencephaly patients resemble animal models with aberrant retinoic acid levels, which also show severe forebrain abnormalities. RA plays an important role in early neural patterning of the vertebrate embryo: expression of RA-synthesizing enzymes initiates high RA levels in the trunk, which are required for proper anterior-posterior patterning of the hindbrain and spinal cord. In the forebrain and midbrain, RA-degrading enzymes are expressed, protecting these regions from the effects of RA. However, the mechanisms that regulate RA-synthesizing and RA-degrading enzymes are poorly understood. Mutations in the gene TGIF are associated with incidence of HPE. We demonstrate in zebrafish that Tgif plays a key role in regulating RA signaling, and is essential to properly pattern the forebrain. Tgif is necessary for normal initiation of genes that control retinoic acid synthesis and degradation, resulting in defects in RA-dependent central nervous system patterning in Tgif-depleted embryos. Loss of the forebrain-specific RA-degrading enzyme cyp26a1 causes a forebrain phenotype that mimics tgif morphants. We propose a model in which Tgif controls forebrain patterning by regulating RA degradation. The consequences of abnormal RA levels for forebrain patterning are profound, and imply that in human patients with TGIF deficiencies, increased forebrain RA levels contribute to the development of holoprosencephaly.