In this study we asked whether members of the hedgehog gene family are involved in osteogenesis. C3H10T1/2 cells and MC3T3-E1 cells expressed the putative hedgehog receptor patched (Ptc) gene. Medium conditioned by chicken embryo fibroblast cultures expressing either Indian hedgehog or Sonic hedgehog stimulated alkaline phosphatase (APase) activity in cultures of the mouse mesenchymal cell line C3H10T1/2 and the osteoblastic cell line MC3T3-E1. These stimulatory effects were synergistically enhanced by bone morphogenetic protein-2 (BMP-2). Treatment with the amino-terminal portion of recombinant Sonic hedgehog proteins (rShh-N) up-regulated the expression of the Ptc gene within 12 h and increased production of APase in C3H10T1/2. rShh-N and BMP-2 also synergistically stimulated APase activity. rShh-N treatment did not affect the expression levels of Bmp-2, -4, -5, -6 and -7 genes. These findings indicate that hedgehog proteins directly act on osteogenic precursor cells and osteoblasts and stimulate osteogenic differentiation of these cells in co-operation with BMPs.