Gene targeting studies indicate that sonic hedgehog (Shh) signaling plays an essential role during craniofacial development. Because numerous mandibular derivatives (e.g., teeth, tongue, Meckel's cartilage) are absent in Shh null mice and the embryonic submandibular salivary gland (SMG) develops from the mandibular arch, we postulated that Shh signaling is important for embryonic SMG development. To address this question, we first determined the spatiotemporal distribution of Shh; two transmembrane proteins, patched 1 (Ptc) and Smoothened (Smo), which act as a negative or a positive regulator of the Shh signal, respectively; and the Gli 3 transcription factor, which is downstream of the Shh signal. The epithelial localization of Shh, Ptc, Smo, and Gli 3 suggests that Shh signaling may act within the epithelium in a juxtacrine manner. The SMG phenotype in our embryonic day (E) 18.5 Shh null mice can be characterized as "paedomorphic," that is, it fails to progress to ontogenic stages beyond the Early Pseudoglandular (ϳE14). In a complementary set of experiments, we used organ culture to evaluate the effect of enhanced or abrogated Shh signaling on embryonic SMG development in vitro. Paired E13 (Late Initial Bud stage) or E14 (Pseudoglandular stage) SMGs were cultured in the presence or absence of exogenous Shh peptide supplementation; Shh-supplemented explants exhibit a significant stage-dependent increase in branching morphogenesis compared with control explants. Furthermore, by using cyclopamine, a steroidal alkaloid that specifically disrupts the Shh pathway, to abrogate endogenous Shh signaling in vitro, we found a significant decrease in branching in cyclopamine-treated explants compared with controls, as well as a significant decrease in epithelial cell proliferation. Our results indicate that Shh signaling plays an essential role during embryonic SMG branching morphogenesis. Exogenous FGF8 peptide supplementation in vitro rescues the abnormal SMG phenotype seen in cyclopamine-treated explants, demonstrating that overexpression of a parallel, but related, downstream signaling pathway can compensate for diminished Shh signaling and restore embryonic SMG branching morphogenesis.