Ptch1 and Ptch2 are highly conserved vertebrate homologs of Drosophila ptc, the receptor of the Hedgehog (Hh) signaling pathway. The vertebrate Ptch1 gene encodes a potent tumor suppressor and is well established for its role in embryonic development. In contrast, Ptch2 is poorly characterized and dispensable for embryogenesis. In flies and mice, ptc/Ptch1 controls Hh signaling through the regulation of Smoothened (Smo). In addition, Hh pathway activation also up-regulates ptc/Ptch1 expression to restrict the diffusion of the ligand. Recent studies have implicated Ptch2 in this ligand dependent antagonism, however whether Ptch2 encodes a functional Shh receptor remains unclear. In this report, we demonstrate that Ptch2 is a functional Shh receptor, which regulates Smo localization and activity in vitro. We also show that Ptch1 and Ptch2 are co-expressed in the developing mouse limb bud and loss of Ptch2 exacerbates the outgrowth defect in the limb-specific Ptch1 knockout mutants, demonstrating that Ptch1 and Ptch2 co-operate in regulating cellular responses to Shh in vivo.