The hedgehog (Hh) signaling pathway is involved in the development of many tissues. Here we show that sonic hedgehog (Shh) is involved in thymocyte development. Our data suggest that termination of Hh signaling is necessary for differentiation from CD4-CD8-double-negative (DN) to CD4+CD8+ double-positive (DP) thymocyte. Shh is produced by the thymic stroma, and Patched and Smoothened (Smo), the transmembrane receptors for Shh, are expressed in DN thymocytes. A neutralizing monoclonal antibody against Shh increases differentiation of DN to DP thymocytes, and Shh protein arrests thymocyte differentiation at the CD25+ DN stage, after T cell receptor beta (TCRbeta) gene rearrangement. We show that one consequence of pre-TCR signaling is downregulation of Smo, allowing DN thymocytes to proliferate and differentiate.