Differentiation often requires conversion of analogue signals to a stable binary output through positive feedback. Hedgehog (Hh) signalling promotes myogenesis in the vertebrate somite, in part by raising the activity of muscle regulatory factors (MRFs) of the Myod family above a threshold. Hh is known to enhance MRF expression. Here we show that Hh is also essential at a second step that increases Myod protein activity, permitting it to promote Myogenin expression. Hh acts by inducing expression of cdkn1c (p57(Kip2)) in slow muscle precursor cells, but neither Hh nor Cdkn1c is required for their cell cycle exit. Cdkn1c co-operates with Myod to drive differentiation of several early zebrafish muscle fibre types. Myod in turn up-regulates cdkn1c, thereby providing a positive feedback loop that switches myogenic cells to terminal differentiation.