Shh signaling is the morphogen signaling that regulates embryonic craniofacial and neural tube development. G protein-coupled receptor 161 (Gpr161) is a negative regulator of Shh signaling, and its inactivation in mice results in embryo lethality with craniofacial and neural tube defects (NTDs). However, the structural defects of later embryonic stages in Gpr161 null mice and cell lineages underlying abnormalities were not well characterized due to their limited lifespan. We found the Pax3 lineage-specific deletion of Gpr161 in mice presented with tectal hypertrophy (anterior dorsal neuroepithelium), cranial vault and facial bone hypoplasia (cranial neural crest (CNC)), vertebral abnormalities (somite), and the closed form of spina bifida (posterior dorsal neuroepithelium). In particular, the closed form of spina bifida is partly due to the reduced Pax3 and Cdx4 gene expression of the posterior dorsal neural tubes of Gpr161 mutant embryos involving decreased Wnt signaling whereas Shh signaling was increased. This study provides the novel role of Gpr161 in the posterior neural tube development and confirms its role on CNC- and somite-derived skeletogenesis and midbrain morphogenesis in mice.