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Cellular retinoic acid-binding protein 1 (CRABP1) is highly expressed in motor neurons. Degenerated motor neuron-like MN1 cells are engineered by introducing SOD^G93A or AR-65Q to model degenerated amyotrophic lateral sclerosis (ALS) or spinal bulbar muscular atrophy neurons. Retinoic acid (RA)/sonic hedgehog (Shh)-induced embryonic stem cells differentiation into motor neurons are employed to study up-regulation of <i>Crabp1</i> by Shh. In SOD^G93A or AR-65Q MN1 neurons, CRABP1 level is reduced, revealing a correlation of motor neuron degeneration with <i>Crabp1</i> down-regulation. Up-regulation of <i>Crabp1</i> by Shh is mediated by glioma-associated oncogene homolog 1 (Gli1) that binds the Gli target sequence in <i>Crabp1′s</i> neuron-specific regulatory region upstream of minimal promoter. Gli1 binding triggers chromatin juxtaposition with minimal promoter, activating transcription. Motor neuron differentiation and <i>Crabp1</i> up-regulation are both inhibited by blunting Shh with Gli inhibitor GANT61. Expression data mining of ALS and spinal muscular atrophy (SMA) motor neurons shows reduced CRABP1, coincided with reduction in Shh-Gli1 signaling components. This study reports motor neuron degeneration correlated with down-regulation in <i>Crabp1</i> and Shh-Gli signaling. Shh-Gli up-regulation of <i>Crabp1</i> involves specific chromatin remodeling. The physiological and pathological implication of this regulatory pathway in motor neuron degeneration is supported by gene expression data of ALS and SMA patients.