Genetic analyses of two hedgehog signal transduction network genes, Patched-1 and Gli2, has demonstrated a critical role for hedgehog signaling in mediating epithelial-stromal tissue interactions during ductal development. Disruption of either gene leads to similar, yet distinct, defects in ductal morphogenesis. Defects are mainly ductal dysplasias that closely resemble some hyperplasias of the human breast. Phenotypic analyses have been coupled with in situ hybridization, transplantation and tissue recombination analyses to formulate a model for tissue compartment-specific control of mouse mammary gland development by hedgehog signaling. In addition, the similarities among hedgehog mutation-induced ductal dysplasias and human breast pathologies suggest a role for altered hedgehog signaling in the development of mammary cancer.