Genes encoding components of the hedgehog signaling pathway are dynamically expressed in the mouse uterus preparing for implantation. Indian hedgehog (Ihh), patched (Ptc), and Gli3 are expressed at low levels in the endometrial epithelium on day 1 of pregnancy. Transcription of Ihh increases dramatically in the luminal epithelium and glands from day 3, reaching very high levels on day 4. Over the same period, Ptc, Gli1, Gli2, and noggin are strongly upregulated in the underlying mesenchymal stroma. Transcription of Ihh in ovariectomized mice is induced by progesterone but not by estrogen. Lower induction of Ihh, Ptc, and Hoxa10 is seen in response to progesterone in the uteri of Pgr^−/− mutant mice lacking progesterone nuclear steroid receptor. This finding suggests that the hormone may regulateIhh through both nuclear receptor-dependent and -independent pathways. We describe a method for culturing uterine explants in the absence of epithelium. Under these conditions, recombinant N-SHH protein promotes the proliferation of mesenchyme cells and the expression of noggin. We propose that IHH made by the epithelium normally functions as a paracrine growth factor for stromal cells during the early stages of pregnancy.