Hedgehog genes have been implicated in inductive signaling during development in a variety of organisms. A key element of the hedgehog signaling system is encoded by the gene patched. In Drosophila hedgehog regulates gene expression by antagonizing the action of patched. In addition, patched is itself a transcriptional target of hedgehog signaling. We have isolated a chicken patched homolog and find it to be strongly expressed adjacent to all tissues where members of the hedgehog family are expressed. As in Drosophila, ectopic expression of Sonic hedgehog leads to ectopic induction of chicken Patched. Based on this regulatory conservation, vertebrate Patched is likely to be directly downstream of Sonic hedgehog signaling. An important role of Sonic hedgehog is the regulation of anterior/posterior pattern in the developing limb bud. Since Patched is directly downstream of the hedgehog signal, the extent of high level Patched expression provides a measure of the distance that Sonic hedgehog diffuses and directly acts. On this basis, we find that Sonic hedgehog directly acts as a signal over only the posterior third of the limb bud. During limb patterning, secondary signals are secreted in both the mesoderm (e.g. Bone Morphogenetic Protein-2) and apical ectodermal ridge (e.g. Fibroblast Growth Factor-4) in response to Sonic hedgehog. Thus knowing which is the direct target tissue is essential for unraveling the molecular patterning of the limb. The expression of Patched provides a strong indication that the mesoderm and not the ectoderm is the direct target of Sonic hedgehog signaling in the limb bud. Finally we demonstrate that induction of Patched requires Sonic hedgehog but, unlike Bone Morphogenetic Protein-2 and Hox genes, does not require Fibroblast Growth Factor as a co-inducer. It is therefore a more direct target of Sonic hedgehog than previously reported patterning genes.