The axial midline mesoderm and the ventral midline of the neural tube, the floor plate, share the property of being a source of the secreted protein, Sonic hedgehog (Shh), which has the capacity to induce a variety of ventral cell types along the length of the mouse CNS. To gain insight into the mechanisms by which Shh transcription is initiated in these tissues, we set out to identify the cis-acting sequences regulating Shh gene expression. As an approach, we have tested genomic clones encompassing 35 kb of the Shh locus for their ability to direct a lacZ reporter gene to the temporally and spatially restricted confines of the Shh expression domains in transgenic mice. Three enhancers were identified that directed lacZ expression to distinct regions along the anteroposterior axis including the ventral midline of the spinal cord, hindbrain, rostral midbrain and caudal diencephalon, suggesting that multiple transcriptional regulators are required to initiate Shh gene expression within the CNS. In addition, regulatory sequences were also identified that directed reporter expression to the notochord, albeit, under limited circumstances. Sequence analysis of the genomic clones responsible for enhancer activity from a variety of organisms, including mouse, chicken and human, have identified highly conserved binding sites for the hepatocyte nuclear factor 3 (Hnf3) family of transcriptional regulators in some, but not all, of the enhancers. Moreover, the generation of mutations in the Hnf3-binding sites showed their requirement in certain, but not all, aspects of Shh reporter expression. Taken together, our results support the existence of Hnf3-dependent and -independent mechanisms in the direct activation of Shh transcription within the CNS and axial mesoderm.