Dispatched1 (Disp1) is required for the release of cholesterol modified hedgehog (Hh) proteins from producing cells. We investigated the role of Disp1 in Indian hedgehog (Ihh) signaling in the developing bone bypassing the lethality of the Disp1(C829F) allele at early somite stages through the supply of non-cholesterol modified Sonic hedgehog (N-Shh). The long bones that develop in the absence of wild-type Disp1, while clearly shorter, have a juxtaposition of proliferating and non-proliferating hypertrophic chondrocytes that is markedly more normal in organization than those of ihh null mutants. Direct analysis of Ihh trafficking in the target field demonstrates that Ihh is distributed well beyond Ihh expressing cells though the range of movement and signaling action is more restricted than in wild-type long bones. Consequently, a PTHrP-Ihh feedback loop is established, but over a shorter distance, reflecting the reduced range of Ihh movement. These analyses of the Disp1(C829F) mutation demonstrate that Disp1 is not absolutely required for the paracrine signaling role of Ihh in the skeleton. However, Disp1 is critical for the full extent of signaling within the chondrocyte target field and consequently the establishment of a normal skeletal growth plate.