The vertebrate head skeleton is derived largely from cranial neural crest cells (CNCC). Genetic studies in zebrafish and mice have established that the Hedgehog (Hh)-signaling pathway plays a critical role in craniofacial development, partly due to the pathway's role in CNCC development. Disruption of the Hh-signaling pathway in humans can lead to the spectral disorder of Holoprosencephaly (HPE), which is often characterized by a variety of craniofacial defects including midline facial clefting and cyclopia 12. Previous work has uncovered a role for Hh-signaling in zebrafish dorsal neurocranium patterning and chondrogenesis, however Hh-signaling mutants have not been described with respect to the ventral pharyngeal arch (PA) skeleton. Lipid-modified Hh-ligands require the transmembrane-spanning receptor Dispatched 1 (Disp1) for proper secretion from Hh-synthesizing cells to the extracellular field where they act on target cells. Here we study chameleon mutants, lacking a functional disp1(con/disp1).con/disp1 mutants display reduced and dysmorphic mandibular and hyoid arch cartilages and lack all ceratobranchial cartilage elements. CNCC specification and migration into the PA primorida occurs normally in con/disp1 mutants, however disp1 is necessary for post-migratory CNCC patterning and differentiation. We show that disp1 is required for post-migratory CNCC to become properly patterned within the first arch, while the gene is dispensable for CNCC condensation and patterning in more posterior arches. Upon residing in well-formed pharyngeal epithelium, neural crest condensations in the posterior PA fail to maintain expression of two transcription factors essential for chondrogenesis, sox9a and dlx2a, yet continue to robustly express other neural crest markers. Histology reveals that posterior arch residing-CNCC differentiate into fibrous-connective tissue, rather than becoming chondrocytes. Treatments with Cyclopamine, to inhibit Hh-signaling at different developmental stages, show that Hh-signaling is required during gastrulation for normal patterning of CNCC in the first PA, and then during the late pharyngula stage, to promote CNCC chondrogenesis within the posterior arches. Further, loss of disp1 disrupted normal expression of bapx1 and gdf5, markers of jaw joint patterning, thus resulting in jaw joint defects in con/disp1 mutant animals.This study reveals novel requirements for Hh-signaling in the zebrafish PA skeleton and highlights the functional diversity and differential sensitivity of craniofacial tissues to Hh-signaling throughout the face, a finding that may help to explain the spectrum of human facial phenotypes characteristic of HPE.