The LIM homeodomain transcription factor Islet1 (Isl1) is expressed in both foregut endoderm and cardiogenic mesoderm and is required for earliest stages of heart development. Here, we report that isl1 is also required upstream of Shh. We find that, in isl1 null mice, Sonic hedgehog (Shh) is downregulated in foregut endoderm. Shh signals through the unique activating receptor smoothened (Smo). To investigate the role of hedgehog signaling in the isl1 domain, we ablated smo utilizing isl1-cre. Isl1-cre;smo mutants exhibit cardiovascular defects similar to those observed in Shh null mice, defining a spatial requirement for hedgehog signaling within isl1 expression domains for aortic arch and outflow tract formation. Semaphorin signaling through neuropilin receptors npn1 and npn2 is required for aortic arch and outflow tract formation. We find that expression of npn2 is downregulated in isl1-cre;smo mutants, suggesting an isl1/Shh/npn pathway required to affect morphogenesis at the anterior pole of the heart.