In the hedgehog signaling network, mutations result in various phenotypes, including, among others, holoprosencephaly, nevoid basal cell carcinoma syndrome, Pallister‐Hall syndrome, Greig cephalopolysyndactyly, Rubinstein‐Taybi syndrome, isolated basal cell carcinoma, and medulloblastoma. Active Hedgehog ligand is double lipid modified with a C‐terminal cholesterol moiety and an N‐terminal palmitate. Transport active Hedgehog from the signaling cell to the responding cell occurs through three mechanisms: 1). formation of multimeric Hedgehog which makes it soluble; 2). function of Dispatched in releasing the lipid‐anchored protein from the signaling cell; and 3). movement across the plasma membrane of the responding cell by Tout‐velu‐dependent synthesis of heparan sulfate proteoglycan. In the responding cell, active Hedgehog binds to its receptor Patched, a 12‐pass transmembrane protein, which frees Smoothened, an adjacent 7‐pass transmembrane protein, for downstream signaling. Patched and Smoothened may shuttle oppositely between the plasma membrane and endocytic vesicles in response to active Hedgehog ligand. In downstream signaling, Cubitus interruptus (Gli proteins in vertebrates), Costal 2, Fused, and Suppressor of Fused form a tetrameric complex. Cubitus interruptus is a bifunctional transcription regulator. In the absence of active Hedgehog ligand, a truncated transcriptional repressor is generated that binds target genes and blocks their transcription. In the presence of active Hedgehog ligand, a full length transcriptional activator binds target genes and upregulates their transcription. Target genes include Wingless (Wnt gene family in vertebrates), Decapentaplegic (Bone Morphogenetic Proteins in vertebrates), and Patched. The upregulation of Patched expression, resulting in Patched protein at the cell membrane, sequesters Hedgehog and limits its spread beyond the cells in which it is produced. Thus, a balance is created by the antagonism of Hedgehog and Patched, whose relative concentrations alternate with respect to each other. Many more factors that are essential for the hedgehog signaling network are also discussed: Megalin, Rab23, Hip, GAS1, PKA, GSK3, CK1, Slimb, SAP18, and CBP. © 2003 Wiley‐Liss, Inc.