Hedgehog (Hh) proteins constitute one family of a small number of secreted signaling proteins that together regulate multiple aspects of animal development, tissue homeostasis and regeneration. Originally uncovered through genetic analyses in Drosophila, their subsequent discovery in vertebrates has provided a paradigm for the role of morphogens in positional specification. Most strikingly, the Sonic hedgehog protein was shown to mediate the activity of two classic embryonic organizing centers in vertebrates and subsequent studies have implicated it and its paralogs in a myriad of processes. Moreover, dysfunction of the signaling pathway has been shown to underlie numerous human congenital abnormalities and diseases, especially certain types of cancer. This review focusses on the genetic studies that uncovered the key components of the Hh signaling system and the subsequent, biochemical, cell and structural biology analyses of their functions. These studies have revealed several novel processes and principles, shedding new light on the cellular and molecular mechanisms underlying cell-cell communication. Notable amongst these are the involvement of cholesterol both in modifying the Hh proteins and in activating its transduction pathway, the role of cytonemes, filipodia-like extensions, in conveying Hh signals between cells; and the central importance of the Primary Cilium as a cellular compartment within which the components of the signaling pathway are sequestered and interact.