Searches of zebrafish EST and whole genome shotgun sequence databases for sequences encoding the sterol-sensing domain (SSD) protein motif identified two sets of DNA sequences with significant homology to the Drosophila dispatched gene required for release of secreted Hedgehog protein. Using morpholino antisense oligonucleotides, we found that inhibition of one of these genes, designated Disp1, results in a phenotype similar to that of the "you-type" mutants, previously implicated in signalling by Hedgehog proteins in the zebrafish embryo. Injection of disp1 mRNA into embryos homozygous for one such mutation, chameleon (con) results in rescue of the mutant phenotype. Radiation hybrid mapping localised disp1 to the same region of LG20 to which the con mutation was mapped by meiotic recombination analysis. Sequence analysis of disp1 cDNA derived from homozygous con mutant embryos revealed that both mutant alleles are associated with premature termination codons in the disp1 coding sequence. By analysing the expression of markers of specific cell types in the neural tube, pancreas and myotome of con mutant and Disp1 morphant embryos, we conclude that Disp1 activity is essential for the secretion of lipid-modified Hh proteins from midline structures.