Signals that instruct the developing limb bud mesenchyme to form the appropriate elements along the anterior posterior axis emanate from the zone of polarizing activity (ZPA). Studies of the last five years have illustrated that the Sonic hedgehog (Shh) protein mediates the activities of the ZPA. This review will focus on three aspects of the ZPA biology. We will address induction of the ZPA in terms of the factors required for activation and maintenance of Shh expression in the posterior limb bud mesenchyme and the evidence for negative regulatory mechanisms that prevent inappropriate Shh expression. Second, we will discuss the current understanding of Shh processing and transduction of the Shh signal, inferring much from the elegant studies on Drosophila Hedgehog (Hh) protein. Finally, we will address the interpretation of the secreted Shh signal by the limb bud mesenchyme that leads to a predictable morphological response.