We describe the rudolph mouse, a mutant with striking defects in both central nervous system and skeletal development. Rudolph is an allele of the cholesterol biosynthetic enzyme, hydroxysteroid (17-beta) dehydrogenase 7, which is an intriguing finding given the recent implication of oxysterols in mediating intracellular Hedgehog (Hh) signaling. We see an abnormal sterol profile and decreased Hh target gene induction in the rudolph mutant, both in vivo and in vitro. Reduced Hh signaling has been proposed to contribute to the phenotypes of congenital diseases of cholesterol metabolism. Recent in vitro and pharmacological data also indicate a requirement for intracellular cholesterol synthesis for proper regulation of Hh activity via Smoothened. The data presented here are the first in vivo genetic evidence supporting both of these hypotheses, revealing a role for embryonic cholesterol metabolism in both CNS development and normal Hh signaling.