The hedgehog pathway is a major regulator of embryonic development, and mutations that decrease its activity are known to be associated with severe defects in nervous system development. Recent evidence suggests hedgehog continues to function in adult tissue, normal as well as diseased, by regulating both cell proliferation and the production of growth and angiogenic factors. In the adult nervous system, this dual ability is especially important in regulating the behavior of neural stem and progenitor cells. This review summarizes information connecting hedgehog signaling and neural diseases, including neurodegenerative disorders and brain tumors, particularly medulloblastoma. We also describe the discovery and utility of small molecule agonists and antagonists of this pathway and their potential as novel types of therapeutics.