Sonic hedgehog (SHH) plays an important role in postnatal tissue repair. The present study tested the hypothesis that impaired SHH pathway results in delayed wound healing by suppressing cutaneous nitric oxide (NO) function in type 1 diabetes. Adult male C57/B6 mice and streptozotocin (STZ)-induced type 1 diabetic mice were used. Although cutaneous SHH and Patched-1 (Ptc-1 encoded by PTCH, PTCH 1) proteins were increased significantly on day 4 after wounding compared with day 0 in normal mice, both were decreased significantly in STZ-induced diabetic mice. Topical application of SHH restored wound healing delay in STZ-induced diabetic mice, with a concomitant augmentation of both cutaneous constitutive nitric oxide synthase (NOS) activity and nitrite level. The effects of SHH on wound healing and cutaneous NO function were markedly inhibited by SHH receptor inhibitor cyclopamine. After 24-h treatment in vitro, SHH (5–20 μg/ml) significantly increased cutaneous endothelial NOS protein expression, NOS activity and NO level in normal mice and STZ-induced diabetic mice in a concentration-dependent manner, an effect that was blunted by cyclopamine and NOS inhibitor N^ω-nitro-l-arginine methyl ester. The phosphatidylinositol 3-kinase inhibitor LY-294002 significantly blunted the increase of NOS activity and NO level induced by SHH treatment in human umbilican vein endothelial cells. These results demonstrate that the SHH pathway is activated in a normal wound, and its reduction results in impaired NO function and wound healing in diabetes. Strategies aimed at augmenting the endogenous SHH pathway may provide an effective means in ameliorating delayed diabetic wound healing.