The kinesin-4 member KIF7 plays critical roles in Hedgehog signaling in vertebrate cells. KIF7 is an atypical kinesin as it binds to microtubules but is immotile. We demonstrate that, like conventional kinesins, KIF7 is regulated by auto-inhibition, as the full-length protein is inactive for microtubule binding in cells. We identify a segment, the inhibitory coiled coil (inhCC), that is required for auto-inhibition of KIF7, whereas the adjacent regulatory coiled coil (rCC) that contributes to auto-inhibition of the motile kinesin-4s KIF21A and KIF21B is not sufficient for KIF7 auto-inhibition. Disease-associated mutations in the inhCC relieve auto-inhibition and result in strong microtubule binding. Surprisingly, uninhibited KIF7 proteins did not bind preferentially to or track the plus ends of growing microtubules in cells, as suggested by previous in vitro work, but rather bound along cytosolic and axonemal microtubules. Localization to the tip of the primary cilium also required the inhCC, and could be increased by disease-associated mutations regardless of the auto-inhibition state of the protein. These findings suggest that loss of KIF7 auto-inhibition and/or altered cilium tip localization can contribute to the pathogenesis of human disease.