Sonic hedgehog (Shh) is a vertebrate gene homologous to a Drosophila segment polarity gene, hedgehog, and functions as a secreted signaling molecule in limb pattern formation, differentiation of motor neurons, and sclerotome induction. We found that Shh is also expressed in epithelia of the developing whisker, hair, tooth, rugae, and thyroid primordium of mouse embryos. In whisker and hair development, Shh is expressed in epithelial cells before condensation of the underlying mesenchymal cells and then in the placode. The expression of Shh continues in the hair bulb surrounding the dermal papilla. Shh is also expressed in epithelial cells of the tooth bud, then localized to the enamel knot. The Shh expression continues in developing ameloblasts. These results suggest that SHH is an essential epithelial signaling molecule in epithelio-mesenchymal interactions for the terminal differentiation.