The Hedgehog (Hh) family of signaling molecules are key agents in patterning numerous types of tissues. Mutations in Hh and its downstream signaling molecules are also associated with numerous oncogenic and disease states. Consequently, understanding the mechanisms by which Hh signals are transduced is important for understanding both development and disease. Recent studies have clarified several aspects of Hh signal transduction. Several new Sonic Hedgehog binding partners have been identified. Cholesterol and palmitic acid modifications of Hh and Sonic hedgehog have been examined in greater detail. Characterization of the trafficking patterns of the Patched and Smoothened proteins has demonstrated that these two proteins function very differently from the previously established models. The Fused kinase has been demonstrated to phosphorylate the kinesin-like protein Costal2 and the sites identified, while Cubitus interruptus has been shown to be phosphorylated in a hierarchical manner by three different kinases. Finally, the interactions, both genetic and physical, between Fused, Costal2, Cubitus interruptus, and Suppressor of Fused have been further elucidated.