Sonic hedgehog (Shh) signaling patterns many vertebrate tissues. shh mutations dramatically affect mouse ventral forebrain and floor plate but produce minor defects in zebrafish. Zebrafish have two mammalian Shh orthologs, sonic hedgehog and tiggy-winkle hedgehog, and another gene, echidna hedgehog, that could have overlapping functions. To examine the role of Hedgehog signaling in zebrafish, we have characterized slow muscle omitted (smu) mutants. We show that smu encodes a zebrafish ortholog of Smoothened that transduces Hedgehog signals. Zebrafish smoothened is expressed maternally and zygotically and supports specification of motoneurons, pituitary cells and ventral forebrain. We propose that smoothened is required for induction of lateral floor plate and a subpopulation of hypothalamic cells and for maintenance of medial floor plate and hypothalamic cells.