Sonic hedgehog (Shh) signaling is required for numerous developmental processes including specification of ventral cell types in the central nervous system such as midbrain dopaminergic (DA) neurons. The multifunctional coreceptor Cdo increases the signaling activity of Shh which is crucial for development of forebrain and neural tube. In this study, we investigated the role of Cdo in midbrain DA neurogenesis. Cdo and Shh signaling components are induced during neurogenesis of embryonic stem (ES) cells. Cdo(-/-) ES cells show reduced neuronal differentiation accompanied by increased cell death upon neuronal induction. In addition, Cdo(-/-) ES cells form fewer tyrosine hydroxylase (TH) and microtubule associated protein 2 (MAP2)-positive DA neurons correlating with the decreased expression of key regulators of DA neurogenesis, such as Shh, Neurogenin2, Mash1, Foxa2, Lmx1a, Nurr1 and Pitx3, relative to the Cdo(+/+) ES cells. Consistently, the Cdo(-/-) embryonic midbrain displays a reduction in expression of TH and Nurr1. Furthermore, activation of Shh signaling by treatment with Purmorphamine (Pur) restores the DA neurogenesis of Cdo(-/-) ES cells, suggesting that Cdo is required for the full Shh signaling activation to induce efficient DA neurogenesis.