The Hedgehog (Hh) signalling pathway plays many important roles in development, homeostasis and tumorigenesis. The critical function of Hh signalling in bone formation has been identified in the past two decades. Here, we review the evolutionarily conserved Hh signalling mechanisms with an emphasis on the functions of the Hh signalling pathway in bone development, homeostasis and diseases. In the early stages of embryonic limb development, Sonic Hedgehog (Shh) acts as a major morphogen in patterning the limb buds. Indian Hedgehog (Ihh) has an essential function in endochondral ossification and induces osteoblast differentiation in the perichondrium. Hh signalling is also involved intramembrane ossification. Interactions between Hh and Wnt signalling regulate cartilage development, endochondral bone formation and synovial joint formation. Hh also plays an important role in bone homeostasis, and reducing Hh signalling protects against age-related bone loss. Disruption of Hh signalling regulation leads to multiple bone diseases, such as progressive osseous heteroplasia. Therefore, understanding the signalling mechanisms and functions of Hh signalling in bone development, homeostasis and diseases will provide important insights into bone disease prevention, diagnoses and therapeutics.