Sonic Hedgehog (Shh) is a secreted protein that controls cell fate and mitogenesis in the developing nervous system. Here we show that a constitutively active form of Smoothened (Smo-M2) mimics concentration-dependent actions of Shh in the developing neural tube, including activation of ventral marker genes (HNF3β, patched, Nkx2. 2, netrin-1), suppression of dorsal markers (Pax-3, Gli-3, Ephrin A5) and induction of ventral neurons (dopaminergic, serotonergic) and ventrolateral motor neurons (Islet-1+, Islet-2+, HB9+) and interneurons (Engrailed-1+, CHX10+). Furthermore, Smo-M2's patterning activities were cell autonomous, occurring exclusively in cells expressing Smo-M2. These findings suggest that Smo is a key signaling component in the Hh receptor and that Shh patterns the vertebrate nervous system as a morphogen, rather than through secondary relay signals.