Sonic hedgehog (Shh) is a gene encoding a protein that can be secreted and act as a morphogen. The protein exerts versatile and important effects on the surrounding cells by binding a specific receptor, named patched. So far Shh has been shown to be involved in the morphogenesis and cytodifferentiation of many organ systems, such as notochord, floor plate, limb, pancreas, and pituitary gland, to mention only a few examples. Shh is also involved in the determination of left-right asymmetry, at least in the chicken embryo. Here we present evidence that Shh is one of the key genes whose activity is pivotal for the normal morphogenesis and differentiation of digestive organs. Epithelial Shh regulates the formation of stomach glands and stratification of the mesenchyme into connective tissue and smooth muscle. It exerts its effect often through the induction of bone morphogenetic protein (BMP) genes in the mesenchyme. Thus, Shh is a key player in the epithelial-mesenchymal interactions in the development of the gut.