The Drosophila segment polarity gene hedgehog (hh) encodes a precursor protein which undergoes autocleavage to generate amino- and carboxy-terminal peptides. Both proteins are secreted and appear to function in embryonic and imaginal disc patterning. Several vertebrate homologs of Drosophila hh have been identified. These include Sonic hedgehog (Shh) (alternatively designated Vhh-1), Desert hedgehog (Dhh) and Indian hedgehog (Ihh). Each contain amino-terminal signal peptides and apparently function as secreted proteins involved in the mediation of various cell-cell interactions. Shh resembles Drosophila hh in that it is processed to generate an amino-terminal secreted peptide that is retained at or near the cell surface and a carboxy-terminal glycosylated more diffusible peptide.