In the absence of Hh (Figure 3), a cell-surface transmembrane protein called Patched (PTCH) acts to prevent high expression and activity of a 7 membrane spanning receptor called Smoothened (SMO). Patched has sequence similarity to known membrane transport proteins. When extracellular Hh is present (Figure 3), it binds to and inhibits Patched, allowing Smoothened to accumulate and inhibit the proteolytic cleavage of the Ci protein. This process most likely involves the direct interaction of Smoothened and Costal-2 and may involve sequestration of the Ci protein-containing complex to a microdomain where the steps leading to Ci protein proteolysis are disrupted. The mechanism by which Hh binding to Patched leads to increased levels of Smoothened is not clear (Step 1 in Figure 3). Following binding of Hh to Patched, Smoothened levels increase greatly over the level maintained in cells when Patched is not bound to Hh. It has been suggested that phosphorylation of Smoothened plays a role in Hh-dependent regulation of Smoothened levels.