The Sonic hedgehog (SHH)-signalling pathway mediates epithelial-mesenchymal interactions in several tissues during development and disease, and we have investigated its role in rat ventral prostate (VP) development. We have demonstrated that Shh and Ptc expression correlates with growth and development of the prostate and that their expression is not regulated by androgens in the VP. Prostatic budding was induced in response to testosterone in Shh null mouse urogenital sinus (UGS) explants grown in vitro and in rat UGS explants cultured with cyclopamine, suggesting that SHH-signalling is not critical for prostatic induction. SHH-signalling was disrupted at later stages of VP development (in vitro), resulting in a reduction in organ size, an increase in ductal tip number, and reduced proliferation of ductal tip epithelia. The addition of recombinant SHH to VPs grown in vitro caused a decrease in ductal tip number and expansion of the mesenchyme. In the presence of testosterone, inhibition of SHH-signalling accelerated the canalisation of prostatic epithelial ducts and resulted in ducts that showed morphological similarities to cribiform prostatic intraepithelial neoplasia (PIN). The epithelia of these ducts also demonstrated precocious and aberrant differentiation, when examined by immunohistochemistry for p63 and cytokeratin 14. In conclusion, we show that SHH-signalling is not essential for prostatic induction, but is important for prostatic growth, branching, and proliferation, and that androgen-stimulated growth in the absence of signalling from the SHH pathway results in aberrant epithelial differentiation.