Previous studies have implicated Sonic hedgehog (Shh) as an important regulator of pharyngeal region development. Here we show that Shh is differentially expressed within the pharyngeal endoderm along the anterior-posterior axis. In Shh-/- mutants, the pharyngeal pouches and arches formed by E9.5 and marker expression showed that initial patterning was normal. However, by E10.5-E11.0, the first arch had atrophied and the first pouch was missing. Although small, the second, third, and fourth arches and pouches were present. The expression patterns of Fgf8, Pax1, and Bmp4 suggested that pouch identity was abnormal at E10.5 and that Shh is a negative regulator of these genes in the pouches. Despite the loss of pouch identity and an increase in mesenchymal cell death, arch identity markers were expressed normally. Our data show that a Shh-dependent patterning mechanism is required to maintain pouch patterning, independent or downstream of arch identity. Changes in the distribution of Bmp4 and Gcm2 in the third pouch endoderm and subsequent organ phenotypes in Shh-/- mutants suggested that exclusion of Shh from the third pouch is required for dorsal-ventral patterning and for parathyroid specification and organogenesis. Furthermore, this function for Shh may be opposed by Bmp4. Our data suggest that, as in the posterior gut endoderm, exclusion of Shh expression from developing primordia is required for the proper development of pharyngeal-derived organs.