Cell differentiation and proliferation require Hedgehog (HH) signaling and aberrant HH signaling causes birth defects or cancers. In this signaling pathway, the N-terminally palmitoylated and C-terminally cholesterylated HH ligand is secreted into the extracellular space with help of the Dispatched-1 (DISP1) and Scube2 proteins. The Patched-1 (PTCH1) protein releases its inhibition of the oncoprotein Smoothened (SMO) after binding the HH ligand, triggering downstream signaling events. In this review, we discuss the recent structural and biochemical studies on four major components of the HH pathway: the HH ligand, DISP1, PTCH1, and SMO. This research provides mechanistic insights into how HH signaling is generated and transduced from the cell surface into the intercellular space and will aid in facilitating the treatment of HH-related diseases.