Giant congenital nevi are associated with clinical complications such as neurocutaneous melanosis and melanoma. Virtually nothing is known about why some individuals develop these lesions. We previously identified the sonic hedgehog (Shh) pathway regulator Cdon as a candidate nevus modifier gene. Here we validate this by studying Cdon knockout mice, and go on to establishing the mechanism by which Shh exacerbates nevogenesis. Cdon knockout mice develop blue nevi without the need for somatic melanocyte oncogenic mutation. In a mouse model carrying melanocyte NRASQ61K, we found that strain backgrounds that carry genetic variants that cause increased keratinocyte Shh pathway activity, as measured by Gli1 and Gli2 expression, develop giant congenital nevi. Shh components are also active adjacent to human congenital nevi. Mechanistically, this exacerbation of nevogenesis is driven via the release of the melanocyte mitogen endothelin-1 from keratinocytes. We then suppressed nevus development in mice using Shh and endothelin antagonists. Our work suggests an aspect of nevus development whereby keratinocyte cytokines such as endothelin-1 can exacerbate nevogenesis, and provides potential therapeutic approaches for giant congenital nevi. Furthermore, it highlights the notion that germline genetic variation, in addition to somatic melanocyte mutation, can strongly influence the histopathological features of melanocytic nevi.