We present spectroscopic observations of the extended emission-line region (EELR) aligned with the radio axis of the powerful radio galaxy 3C 171. The results obtained from a detailed analysis of the observational data show that shocks induced by jet-cloud interactions have a dramatic effect on the extended line-emitting gas. The evidence for shocks includes (1) close radio-optical associations; (2) ionization minima coincident with both radio hot spots; (3) high-velocity (~500 km s-1) line splitting displaced by ~2'' (10 kpc) (a Hubble constant of H0 = 50 km s-1 and a decleration parameter of q0 are assumed throughout this paper) behind the hot spots on either side of the nucleus, spatially associated with the two inner radio knots; (4) large line widths in the extended gas (FWHM ~ 1300 km s-1); and (5) an anticorrelation between line width and ionization state in the extended gas. Given that shocks clearly determine the morphology, kinematics, and physical conditions of the extended line-emitting gas, shock ionization is a possible alternative to AGN photoionization in the EELR. The high [O III] temperatures and low He II/Hβ ratios in the EELR provide evidence that local ionization by shocks is indeed important. A pronounced UV continuum excess is also detected in the extended line-emitting regions. From the measured strength of the Balmer lines, it is found that the extended UV continuum is dominated by nebular continuum emission from the warm gas. There is no evidence whatsoever for jet-induced star formation. The properties of 3C 171—in particular the alignment of the optical line and UV-continuum emission with the radio axis, and the extreme emission-line kinematics in the extended gas—are similar to those observed in high-redshift radio galaxies. This supports the hypothesis that jet-induced shocks determine the distribution, kinematics, physical conditions, and ionization of the EELR in the powerful radio galaxies observed at high redshifts.