Hedgehog (Hh) proteins comprise a family of secreted signaling molecul
es essential for patterning a variety of structures in animal embryoge
nesis. During biosynthesis, Hh undergoes an autocleavage reaction, med
iated by its carboxyl-terminal domain, that produces a lipid-modified
amino-terminal fragment responsible for all known Hh signaling activit
y. Here it is reported that cholesterol is the lipophilic moiety coval
ently attached to the amino-terminal signaling domain during autoproce
ssing and that the carboxyl-terminal domain acts as an intramolecular
cholesterol transferase. This use of cholesterol to modify embryonic s
ignaling proteins may account for some of the effects of perturbed cho
lesterol biosynthesis on animal development.