Aberrant regulation of signalling mechanisms that normally orchestrate embryonic development, such as the Hedgehog, Wnt and Notch pathways, is a common feature of tumorigenesis. In order to better understand the neoplastic events mediated by Hedgehog signalling, we identified over 200 genes regulated by Sonic Hedgehog in multipotent mesodermal cells. Widespread crosstalk with other developmental signalling pathways is evident, suggesting a complex network of interactions that challenges the often over-simplistic representation of these pathways as simple linear entities. Hes1, a principal effector of the Notch pathway, was found to be a target of Sonic Hedgehog in both C3H/10T1/2 mesodermal and MNS70 neural cells. Desert Hedgehog also elicited a strong Hes1 response. While Smoothened function was found necessary for upregulation of Hes1 in response to Sonic Hedgehog, the mechanism does not require gamma-secretase-mediated cleavage of Notch receptors, and appears to involve transcription factors other than RBP-Jkappa. Thus, we have defined a novel mechanism for Hes1 regulation in stem-like cells that is independent of canonical Notch signalling.