Hedgehog (Hh) signaling is highly conserved among species and plays indispensable roles in various developmental processes. There are three Hh members in mammals; one of them, Indian hedgehog (Ihh), is expressed in prehypertrophic and hypertrophic chondrocytes during endochondral ossification. Based on mouse genetic studies, three major functions of Ihh have been proposed: (1) Regulation of chondrocyte differentiation via a negative feedback loop formed together with parathyroid hormone-related protein (PTHrP), (2) promotion of chondrocyte proliferation, and (3) specification of bone-forming osteoblasts. Gli transcription factors mediate the major aspect of Hh signaling in this context. Gli3 has dominant roles in the growth plate chondrocytes, whereas Gli1, Gli2, and Gli3 collectively mediate biological functions of Hh signaling in osteoblast specification. Recent studies have also highlighted postnatal roles of the signaling in maintenance and repair of skeletal tissues.