Amputation of the zebrafish caudal fin stimulates regeneration of the dermal skeleton and reexpression of sonic hedgehog (shh)-signaling pathway genes. Expression patterns suggest a role for shh signaling in the secretion and patterning of the regenerating dermal bone, but a direct role has not been demonstrated. We established an in vivo method of gene transfection to express ectopically genes in the blastema of regenerating fins. Ectopic expression of shh or bmp2 in the blastema-induced excess bone deposition and altered patterning of the regenerate. The effects of shh ectopic expression could be antagonized by ectopic expression of chordin, an inhibitor of bone morphogenetic protein (bmp) signaling. We disrupted shh signaling in the regenerating fin by exposure to cyclopamine and found a dose-dependent inhibition of fin outgrowth, accumulation of melanocytes in the distal region of each fin ray, loss of actinotrichia, and reduction in cell proliferation in the mesenchyme. Morphological changes were accompanied by an expansion, followed by a reduction, in domains of shh expression and a rapid abolition of ptc1 expression. These results implicate shh and bmp2b signaling in the proliferation and/or differentiation of specialized bone-secreting cells in the blastema and suggest shh expression may be controlled by regulatory feedback mechanisms that define the region of bone secretion in the outgrowing fin.