Hedgehog (Hh) proteins are one of a small number of families of secreted signalling proteins that are responsible for cell interactions during development in many animals. As such, Hh signals produce many different responses at different times and in different cells. As for other multifunctional ligands, this requires regulated patterns of expression, special mechanisms for ligand movement between cells and ligand destruction, and mechanisms for integrating a generic signalling state (on or off) with the status of responding cells in order to produce an appropriate cell-specific response. Here I discuss what is known about the biochemical mechanisms by which an Hh signal is transduced in order to change the patterns of gene transcription.