Taste buds on the anterior part of the tongue develop in conjunction with epithelial–mesenchymal specializations in the form of gustatory (taste) papillae. Sonic hedgehog (Shh) and Bone Morphogenetic Protein 4 (BMP4) are expressed in developing taste papillae, but the roles of these signaling molecules in specification of taste bud progenitors and in papillary morphogenesis are unclear. We show here that BMP4 is not expressed in the early tongue, but is precisely coexpressed with Shh in papillary placodes, which serve as a signaling center for both gustatory and papillary development. To elucidate the role of Shh, we used an in vitro model of mouse fungiform papillary development to determine the effects of two functional inhibitors of Shh signaling: anti-Shh (5E1) antibody and cyclopamine. Cultured E11.5 tongue explants express Shh and BMP4^LacZ in a pattern similar to that of intact embryos, localizing to developing papillary placodes after 2 days in culture. Tongues cultured with 5E1 antibody continue to express these genes in papillary patterns but develop more papillae that are larger and closer together than in controls. Tongues cultured with cyclopamine have a dose-dependent expansion of Shh and BMP4^LacZ expression domains. Both antibody-treated and cyclopamine-treated tongue explants also are smaller than controls. Taken together, these results suggest that, although Shh is not involved in the initial specification of papillary placodes, Shh does play two key roles during pmcry development: (1) as a morphogen that directs cells toward a nonpapillary fate, and (2) as a mitogen, causing expansion of the interplacodal epithelium and underlying mesenchyme.