Indian Hedgehog (Ihh), a member of the hedgehog (HH) family of secreted morphogens, and parathyroid hormone-related peptide (PTHrP) are key regulators of cartilage cell (chondrocyte) differentiation. We have investigated, in vitro, the actions of HH signalling and its possible interplay with PTHrP using rat CFK-2 chondrocytic cells. Markers of chondrocyte differentiation [alkaline phosphatase (ALP) activity, and type II (Col2a1) and type X collagen (Col10a1) expression] were enhanced by overexpression of Ihh or its N-terminal domain (N-Ihh), effects mimicked by exogenous administration of recombinant N-terminal HH peptide. Moreover, a missense mutation mapping to the N-terminal domain of Ihh (W160G) reduces the capacity of N-Ihh to induce differentiation. Prolonged exposure of CFK-2 cells to exogenous N-Shh (5x10(-9) M) in the presence of PTHrP (10(-8) M) or forskolin (10(-7) M) resulted in perturbation of HH-mediated differentiation. In addition, overexpression of a constitutively active form of the PTHrP receptor (PTHR1 H223R) inhibited Ihh-mediated differentiation, implicating activation of protein kinase A (PKA) by PTHR1 as a probable mediator of the antagonistic effects of PTHrP. Conversely, overexpression of Ihh/N-Ihh or exogenous treatment with N-Shh led to dampening of PTHrP-mediated activation of PKA. Taken together, our data suggest that Ihh harbors the capacity to induce rather than inhibit chondrogenic differentiation, that PTHrP antagonizes HH-mediated differentiation through a PKA-dependent mechanism and that HH signalling, in turn, modulates PTHrP action through functional inhibition of signalling by PTHR1 to PKA.