Exostosin1 (Ext1) belongs to a family of glycosyltransferases necessary for the synthesis of the heparan sulfate (HS) chains of proteoglycans, which regulate signaling of several growth factors. Loss of tout velu (ttv), the homolog of Ext1 in Drosophila, inhibits Hedgehog movement. In contrast, we show that reduced HS synthesis in mice carrying a hypomorphic mutation in Ext1 results in an elevated range of Indian hedgehog (Ihh) signaling during embryonic chondrocyte differentiation. Our data suggest a dual function for HS: First, HS is necessary to bind Hedgehog in the extracellular space. Second, HS negatively regulates the range of Hedgehog signaling in a concentration-dependent manner. Additionally, our data indicate that Ihh acts as a long-range morphogen, directly activating the expression of parathyroid hormone-like hormone. Finally, we propose that the development of exostoses in the human Hereditary Multiple Exostoses syndrome can be attributed to activation of Ihh signaling.