The development of a functional tissue requires coordination of the amplification of progenitors and their differentiation into specific cell types. The molecular basis for this coordination during myotome ontogeny is not well understood. Dermomytome progenitors that colonize the myotome first acquire myocyte identity and subsequently proliferate as Pax7-expressing progenitors before undergoing terminal differentiation. We show that the dynamics of sonic hedgehog (Shh) signaling is crucial for this transition in both avian and mouse embryos. Initially, Shh ligand emanating from notochord/floor plate reaches the dermomyotome, where it both maintains the proliferation of dermomyotome cells and promotes myogenic differentiation of progenitors that colonized the myotome. Interfering with Shh signaling at this stage produces small myotomes and accumulation of Pax7-expressing progenitors. An in vivo reporter of Shh activity combined with mouse genetics revealed the existence of both activator and repressor Shh activities operating on distinct subsets of cells during the epaxial myotomal maturation. In contrast to observations in mice, in avians Shh promotes the differentiation of both epaxial and hypaxial myotome domains. Subsequently, myogenic progenitors become refractory to Shh; this is likely to occur at the level of, or upstream of, smoothened signaling. The end of responsiveness to Shh coincides with, and is thus likely to enable, the transition into the growth phase of the myotome.