Sonic hedgehog (Shh) is not only essential to the development of the gastrointestinal tract, but is also necessary to maintain the characteristic acid-secreting phenotype of the adult stomach. Gastrin is the only hormone capable of stimulating gastric acid and is thus required to maintain functional parietal cells. We have shown previously that gastrin-null mice display gastric atrophy and metaplasia prior to progression to distal, intestinal-type gastric cancer. Because reduced levels of Shh peptide correlate with gastric atrophy, we examined whether gastrin regulates Shh expression in parietal cells. We show here that gastrin stimulates Shh gene expression and acid-dependent processing of the 45-kDa Shh precursor to the 19-kDa secreted peptide in primary parietal cell cultures. This cleavage was blocked by the proton pump inhibitor omeprazole and mediated by the acid-activated protease pepsin A. Pepsin A was also the protease responsible for processing Shh in tissue extracts from human stomach. By contrast, extracts prepared from neoplastic gastric mucosa had reduced levels of pepsin A and did not process Shh. Therefore processing of Shh in the normal stomach is hormonally regulated, acid-dependent, and mediated by the aspartic protease pepsin A. Moreover parietal cell atrophy, a known pre-neoplastic lesion, correlates with loss of Shh processing.