Fig. 3. Production and secretion of Shh protein. (A) Shh is produced as a large precursor protein that undergoes a series of post-translational modifications prior to secretion. Following cleavage of an N-terminal signal sequence upon entry into the secretory pathway, a second cleavage event, catalyzed by the C-terminal portion (yellow) of the protein, produces an N-terminal fragment (blue) that has a cholesterol adduct at its C terminus (Bumcrot et al., 1995; Lee et al., 1994; Porter et al., 1995). An acyltransferase, Skn, palmitoylates Shh on a cysteine residue near the N terminus (Chen et al., 2004; Pepinsky et al., 1998; Porter et al., 1996a; Porter et al., 1996b). These events produce a biologically active Shh, which is termed ShhNp. (B) The release of fully processed ShhNp from producing cells requires the multi-pass transmembrane protein dispatched1 (Disp1). How Disp1 promotes the release of ShhNp remains unknown, but it might facilitate the assembly of soluble, high molecular weight ShhNp complexes. Both palmitoylation and cholesterol modifications are essential for the assembly of this complex (Chen et al., 2004), which has long-range and high signaling activity (Goetz et al., 2006; Zeng et al., 2001). In contrast to ShhNp, an artificial construct, ShhN, that encodes the same amino acid sequence as ShhNp but lacks the cholesterol adduct is secreted from cells independently of Disp1 (Caspary et al., 2002; Kawakami et al., 2002; Ma et al., 2002).