Abstract7‐dehydrocholesterol reductase (7‐Dhcr) catalyses the final step in the pathway of cholesterol biosynthesis. Human patients with inborn errors of 7‐Dhcr (Smith‐Lemli‐Opitz‐Syndrome) have elevated serum levels of 7‐dehydrocholesterol but low levels of cholesterol, which in phenotypical terms can result in growth retardation, craniofacial abnormalities including cleft palate, and reduced metal abilities. This study reports the isolation and molecular characterisation of 7‐dehydrocholesterol reductase (Xdhcr7) from Xenopus laevis. During early embryonic development, the expression of Xdhcr7 is first of all spatially restricted to the Spemann's organizer and later to the notochord. In both tissues, Xdhcr7 is coexpressed with Sonic hedgehog (Shh), which itself is cholesterol‐modified during autoproteolytic cleavage. Data from Xdhcr7 overexpression and knockdown experiments reveals that a tight control of cholesterol synthesis is particularly important for proper development of the central and peripheral nervous system. Developmental Dynamics 235:2095–2110, 2006. © 2006 Wiley‐Liss, Inc.