We show that Schwann cell-derived Desert hedgehog (Dhh) signals the formati
on of the connective tissue sheath around peripheral nerves, mRNAs for dhh
and its receptor patched (ptc) are expressed in Schwann cells and perineura
l mesenchyme, respectively. In dhh(-/-) mice, epineurial collagen is reduce
d, while the perineurium is thin and disorganized, has patchy basal lamina,
and fails to express connexin 43. Perineurial tight junctions are abnormal
and allow the passage of proteins and neutrophils. In nerve fibroblasts, D
hh upregulates ptc and hedgehog-interacting protein (hip). These experiment
s reveal a novel developmental signaling pathway between glia and mesenchym
al connective tissue and demonstrate its molecular identity in peripheral n
erve. They also show that Schwann cell-derived signals can act as important
regulators of nerve development.