Krüppel-like zinc finger transcription factors compose the largest transcription factor family in the mammalian genome. However, the functions for the majority of these transcription factors as well as their in vivo downstream targets are not clear. We have functionally characterized a novel KRAB domain zinc finger transcription factor ZNF431 using both in vitro and in vivo assays. ZNF431 is a nuclear transcriptional repressor whose repressive activity depends on its association with HDAC1 and -2. Using the limb mesenchymal cell line MPLB, we identified Patched1 as a direct transcriptional target of ZNF431. Promoter analyses revealed three ZNF431 binding sites that bind to ZNF431 both in vitro and in vivo as revealed by gel-shift and chromatin immunoprecipitation, respectively. Mutations of these three sites abolished ZNF431 repression in transient transfection assays. Moreover, overexpressing ZNF431 in MPLB cells or in Xenopus and mouse embryos strongly repressed Patched1 expression. On the other hand, shRNA knockdown of ZNF431 in MPLB cells elevated Patched1 expression. Finally, hedgehog signaling readout was reduced in ZNF431 overexpression but elevated in ZNF431 knockdown MPLB cells. Our results indicate that ZNF431 directly represses Patched1 expression and likely functions to repress the hedgehog response in cells.