Hedgehog (HH) signalling governs embryogenesis and adult tissue homeostasis in mammals and other multicellular organisms1-3. Whereas deficient HH signalling leads to birth defects, unrestrained HH signalling is implicated in human cancers2,4-6. N-terminally palmitoylated HH releases the repression of Patched to the oncoprotein smoothened (SMO); however, the mechanism by which HH recognizes Patched is unclear. Here we report cryo-electron microscopy structures of human patched 1 (PTCH1) alone and in complex with the N-terminal domain of 'native' sonic hedgehog (native SHH-N has both a C-terminal cholesterol and an N-terminal fatty-acid modification), at resolutions of 3.5 Å and 3.8 Å, respectively. The structure of PTCH1 has internal two-fold pseudosymmetry in the transmembrane core, which features a sterol-sensing domain and two homologous extracellular domains, resembling the architecture of Niemann-Pick C1 (NPC1) protein7. The palmitoylated N terminus of SHH-N inserts into a cavity between the extracellular domains of PTCH1 and dominates the PTCH1-SHH-N interface, which is distinct from that reported for SHH-N co-receptors8. Our biochemical assays show that SHH-N may use another interface, one that is required for its co-receptor binding, to recruit PTCH1 in the absence of a covalently attached palmitate. Our work provides atomic insights into the recognition of the N-terminal domain of HH (HH-N) by PTCH1, offers a structural basis for cooperative binding of HH-N to various receptors and serves as a molecular framework for HH signalling and its malfunction in disease.