In this study, we describe the generation and partial characterization of Krüppel-like zinc finger protein Glis3 mutant (Glis3zf/zf) mice. These mice display abnormalities very similar to those of patients with neonatal diabetes and hypothyroidism syndrome, including the development of diabetes and polycystic kidney disease. We demonstrate that Glis3 localizes to the primary cilium, suggesting that Glis3 is part of a cilium-associated signaling pathway. Although Glis3zf/zf mice form normal primary cilia, renal cysts contain relatively fewer cells with a primary cilium. We further show that Glis3 interacts with the transcriptional modulator Wwtr1/TAZ, which itself has been implicated in glomerulocystic kidney disease. Wwtr1 recognizes a P/LPXY motif in the C terminus of Glis3 and enhances Glis3-mediated transcriptional activation, indicating that Wwtr1 functions as a coactivator of Glis3. Mutations in the P/LPXY motif abrogate the interaction with Wwtr1 and the transcriptional activity of Glis3, indicating that this motif is part of the transcription activation domain of Glis3. Our study demonstrates that dysfunction of Glis3 leads to the development of cystic renal disease, suggesting that Glis3 plays a critical role in maintaining normal renal functions. We propose that localization to the primary cilium and interaction with Wwtr1 are key elements of the Glis3 signaling pathway.