The unanticipated involvement of several intraflagellar transport proteins in the mammalian Hedgehog (Hh) pathway has hinted at a functional connection between cilia and Hh signal transduction. Here we show that mammalian Smoothened (Smo), a seven-transmembrane protein essential for Hh signalling, is expressed on the primary cilium. This ciliary expression is regulated by Hh pathway activity; Sonic hedgehog or activating mutations in Smo promote ciliary localization, whereas the Smo antagonist cyclopamine inhibits ciliary localization. The translocation of Smo to primary cilia depends upon a conserved hydrophobic and basic residue sequence homologous to a domain previously shown to be required for the ciliary localization of seven-transmembrane proteins in Caenorhabditis elegans. Mutation of this domain not only prevents ciliary localization but also eliminates Smo activity both in cultured cells and in zebrafish embryos. Thus, Hh-dependent translocation to cilia is essential for Smo activity, suggesting that Smo acts at the primary cilium.