Intercellular signal essential for a variety of patterning events during development. Signal produced by the notochord that induces somite patterning, dorso-ventral patterning of the brain and early patterning of the developing eyes. Displays floor plate-inducing activity. Binds to the patched (PTC) receptor, which functions in association with smoothened (SMO), to activate the transcription of target genes. In the absence of SHH, PTC represses the constitutive signaling activity of SMO (By similarity). N-product is active as a multimer. Sonic hedgehog protein C-product: Secreted, extracellular space. Sonic hedgehog protein N-product: Cell membrane; Lipid-anchor. The C-terminal peptide diffuses from the cell, while the N-product either remains associated with lipid rafts at the cell surface, or forms freely diffusible active multimers with its hydrophobic lipid-modified N- and C-termini buried inside. The sonic hedgehog protein N-product binds calcium and zinc ions; this stabilizes the protein fold and is essential for protein-protein interactions mediated by this domain. The C-terminal domain displays an autoproteolysis activity and a cholesterol transferase activity. Both activities result in the cleavage of the full-length protein and covalent attachment of a cholesterol moiety to the C-terminal of the newly generated N-terminal fragment (N-product). The N-product is the active species in both local and long-range signaling, whereas the C-product has no signaling activity. Cholesterylation is required for N-product targeting to lipid rafts and multimerization. N-palmitoylation is required for N-product multimerization and full activity. Belongs to the hedgehog family.