Secreted signaling proteins of the Hedgehog family organize spatial pattern during animal development. Two integral membrane proteins have been identified with distinct roles in Hedgehog signaling. Patched functions in Hedgehog binding, and Smoothened functions in transducing the signal. Current models view Patched and Smoothened as a preformed receptor complex that is activated by Hedgehog binding. Here we present evidence that Patched destabilizes Smoothened in the absence of Hedgehog. Hedgehog binding causes removal of Patched from the cell surface. In contrast, Hedgehog causes phosphorylation, stabilization, and accumulation of Smoothened at the cell surface. Comparable effects can be produced by removing Patched from cells by RNA-mediated interference. These findings raise the possibility that Patched acts indirectly to regulate Smoothened activity.