Cyclopamine is a teratogenic steroidal alkaloid that causes cyclopia by blocking Sonic hedgehog (Shh) signal transduction. We have tested whether this activity of cyclopamine is related to disruption of cellular cholesterol transport and putative secondary effects on the Shh receptor, Patched (Ptc). First, we report that the potent antagonism of Shh signaling by cyclopamine is not a general property of steroidal alkaloids with similar structure. The structural features of steroidal alkaloids previously associated with the induction of holoprosencephaly in whole animals are also associated with inhibition of Shh signaling in vitro. Second, by comparing the effects of cyclopamine on Shh signaling with those of compounds known to block cholesterol transport, we show that the action of cyclopamine cannot be explained by inhibition of intracellular cholesterol transport. However, compounds that block cholesterol transport by affecting the vesicular trafficking of the Niemann-Pick C1 protein (NPC1), which is structurally similar to Ptc, are weak Shh antagonists. Rather than supporting a direct link between cholesterol homeostasis and Shh signaling, our findings suggest that the functions of both NPC1 and Ptc involve a common vesicular transport pathway. Consistent with this model, we find that Ptc and NPC1 colocalize extensively in a vesicular compartment in cotransfected cells.