Signaling by Sonic hedgehog (Shh) controls important developmental processes, including dorsoventral neural tube patterning, neural stem cell proliferation, and neuronal and glial cell survival. Shh signaling involves lipid modifications to Shh itself, as well as changes in protein subcellular localization. Recent advances have revealed the importance of palmitoylation and acylation of Shh on its potency and migration capacity. Subsequent trafficking and organelle sorting in the Shh signaling pathway have been observed; these observations offer a new dimension to our understanding of downstream signal transduction events.