The Sonic Hedgehog (Shh) signalling pathway plays a central role in the development of the skin and hair follicle and is a major determinant of skin tumorigenesis, most notably of basal cell carcinoma (BCC). Various mouse models involving either ablation or overexpression of key members of the Shh signalling pathway display a range of skin tumours. To further examine the role of Shh in skin development, we have overexpressed Shh in a subset of interfollicular basal cells from 12.5 dpc under the control of the human keratin 1 (HK1) promoter. The HK1-Shh transgenic mice display a range of skin anomalies, including highly pigmented inguinal lesions and regions of alopecia. The most striking hair follicle phenotype is a suppression in embryonic follicle development between 14.0 and 19.0 dpc, resulting in a complete absence of guard, awl, and auchene hair fibres. These data indicate that alternative signals are responsible for the development of different hair follicles and point to a major role of Shh signalling in the morphogenesis of guard, awl, and auchene hair fibres. Through a comparison with other mouse models, the characteristics of the HK1-Shh transgenic mice suggest that the precise timing and site of Shh expression are key in dictating the resultant skin and tumour phenotype.