Sonic hedgehog promotes proliferation of developing cerebellar granule cells. As sonic hedgehog is expressed in the cerebellum throughout life it is not clear why proliferation occurs only in the early postnatal period and only in the external granule cell layer. We asked whether heparan sulfate proteoglycans might regulate sonic hedgehog-induced proliferation and thereby contribute to the specialized proliferative environment of the external granule cell layer. We identified a conserved sequence within sonic hedgehog that is essential for binding to heparan sulfate proteoglycans, but not for binding to the receptor patched. Sonic hedgehog interactions with heparan sulfate proteoglycans promote maximal proliferation of postnatal day 6 granule cells. By contrast, proliferation of less mature granule cells is not affected by sonic hedgehog-proteoglycan interactions. The importance of proteoglycans for proliferation increases during development in parallel with increasing expression of the glycosyltransferase genes, exostosin 1 and exostosin 2. These data suggest that heparan sulfate proteoglycans, synthesized by exostosins, may be critical determinants of granule cell proliferation.