Sirenomelia is a severe congenital malformation of the lower body characterized by the fusion of the legs into a single lower limb. This striking external phenotype consistently associates severe visceral abnormalities, most commonly of the kidneys, intestine, and genitalia that generally make the condition lethal. Although the causes of sirenomelia remain unknown, clinical studies have yielded two major hypotheses: i) a primary defect in the generation of caudal mesoderm, ii) a primary vascular defect that leaves the caudal part of the embryo hypoperfused. Interestingly, Sirenomelia has been shown to have a genetic basis in mice, and although it has been considered a sporadic condition in humans, recently some possible familial cases have been reported. Here, we report that the removal of one or both functional alleles of Shh from the Bmp7-null background leads to a sirenomelia phenotype that faithfully replicates the constellation of external and internal malformations, typical of the human condition. These mutants represent an invaluable model in which we have analyzed the pathogenesis of sirenomelia. We show that the signaling defect predominantly impacts the morphogenesis of the hindgut and the development of the caudal end of the dorsal aortas. The deficient formation of ventral midline structures, including the interlimb mesoderm caudal to the umbilicus, leads to the approximation and merging of the hindlimb fields. Our study provides new insights for the understanding of the mechanisms resulting in caudal body malformations, including sirenomelia.