We have identified three members of a mouse gene family related to the Drosophila segment polarity gene, hedgehog (hh). Like hh, they encode putative secreted proteins and are thus implicated in cell-cell interactions. One of these, Sonic hh (Shh), is expressed in the notochord, the floor plate, and the zone of polarizing activity, signaling centers that are thought to mediate central nervous system (CNS) and limb polarity. Ectopic expression of Shh in the mouse CNS leads to the activation of floor plate-expressed genes. These results suggest that Shh may play a role in the normal inductive interactions that pattern the ventral CNS.