Neural progenitors are organized as a pseudostratified epithelium held together by adherens junctions (AJs), multi-protein complexes composed of cadherins and alpha and beta catenin. Catenins are known to control neural progenitor division, however it is not known whether they function in this capacity as cadherin binding partners, as there is little evidence that cadherins themselves regulate neural proliferation. We show here that zebrafish N-cadherin (N-cad) restricts cell proliferation in the dorsal region of the neural tube by regulating cell cycle length. We further reveal that N-cad couples cell cycle exit and differentiation, as a fraction of neurons are mitotic in N-cad mutants. Enhanced proliferation in N-cad mutants is mediated by ligand-independent activation of Hedgehog (Hh) signaling, possibly caused by defective ciliogenesis. Furthermore, depletion of Hh signaling results in the loss of junctional markers. We therefore propose that N-cad restricts the response of dorsal neural progenitors to Hh and Hh signaling limits the range of its own activity by promoting AJ assembly. Taken together, these findings emphasize a key role for N-cad-mediated adhesion in controlling neural progenitor proliferation. In addition, they are the first to demonstrate a requirement for cadherins in synchronizing cell cycle exit and differentiation and a reciprocal interaction between AJs and Hh signaling.