Induction of smooth muscle differentiation from bladder mesenchyme depends on signals that originate from the urothelium. We hypothesize Sonic hedgehog (Shh) is the urothelial signal that promotes bladder mesenchymal proliferation and induces bladder smooth muscle differentiation. Pregnant FVB mice were euthanized on embryonic day (E) 12.5 and fetal bladders were harvested. Two experimental protocols were utilized: Specimens were sized by serial sectioning. Cell counts were performed after trypsin digestion. Immunohistochemistry was performed to detect smooth muscle-specific protein expression. alpha-Actin expression was quantified using Western blot. All specimens were viable at 72h. BLM cultured without Shh survived but did not grow or undergo smooth muscle differentiation. IB cultured without Shh and BLM cultured with Shh grew and expressed smooth muscle proteins at 72h. IB cultured with Shh were larger and contained more cells than IB cultured without Shh (all p<0.05). Increasing Shh concentration from 48 to 480nM did not change bladder size, cell counts, or the level of alpha-actin expression. Prior to culture, IB did not express alpha-actin. After culture of IB in Shh-deficient media, alpha-actin was detected throughout the mesenchyme except in the submucosal layer. The IB submucosa was thinner after culture with 48nM Shh and smooth muscle completely obliterated the submucosa after culture with 480nM Shh. In fetal mouse bladders, urothelium-derived Shh is necessary for mesenchymal proliferation and smooth muscle differentiation. Shh concentration affects mesenchymal proliferation and patterning of bladder smooth muscle.