Precise patterning of cell types along the dorsal-ventral axis of the spinal cord is essential to establish functional neural circuits. In order to prove the feasibility of studying a single biological process through random mutagenesis in the mouse, we have identified recessive ENU-induced mutations in six genes that prevent normal specification of ventral cell types in the spinal cord. We positionally cloned the genes responsible for two of the mutant phenotypes, smoothened and dispatched, which are homologs of Drosophila Hh pathway components. The Dispatched homolog1 (Disp1) mutation causes lethality at midgestation and prevents specification of ventral cell types in the neural tube, a phenotype identical to the Smoothened (Smo) null phenotype. As in Drosophila, mouse Disp1 is required to move Shh away from the site of synthesis. Despite the existence of a second mouse disp homolog, Disp1 is essential for long-range signaling by both Shh and Ihh ligands. Our data indicate that Shh signaling is required within the notochord to maintain Shh expression and to prevent notochord degeneration. Disp1, unlike Smo, is not required for this juxtacrine signaling by Shh.