BACKGROUND The skin is responsible for forming a variety of epidermal structures that differ amongst vertebrates. In each case the specific structure (for example scale, feather or hair) arises from an epidermal placode as a result of epithelial-mesenchymal interactions with the underlying dermal mesenchyme. Expression of members of the Wnt, Hedgehog and bone morphogenetic protein families (Wnt10b, Sonic hedgehog (Shh) and Bmp2/Bmp4, respectively) in the epidermis correlates with the initiation of hair follicle formation. Further, their expression continues into either the epidermally derived hair matrix which forms the hair itself, or the dermal papilla which is responsible for induction of the hair matrix. To address the role of Shh in the hair follicle, we have examined Shh null mutant mice. RESULTS We found that follicle development in the Shh mutant embryo arrested after the initial epidermal-dermal interactions that lead to the formation of a dermal papilla anlage and ingrowth of the epidermis. Wnt10b, Bmp2 and Bmp4 continued to be expressed at this time, however. When grafted to nude mice (which lack T cells), Shh mutant skin gave rise to large abnormal follicles containing a small dermal papilla. Although these follicles showed high rates of proliferation and some differentiation of hair matrix cells into hair-shaft-like material, no hair was formed. CONCLUSIONS Shh signaling is not required for initiating hair follicle development. Shh signaling is essential, however, for controlling ingrowth and morphogenesis of the hair follicle.