During the development of the proventriculus (glandular stomach) of the chicken embryo, the endodermal epithelium invades into the surrounding mesenchyme and forms glands. The glandular epithelial cells produce pepsinogen, while the non-glandular (luminal) epithelial cells secrete mucus. Sonic hedgehog is expressed uniformly in the proventricular epithelium before gland formation, but its expression ceases in gland cells. Here we present evidence that down-regulation of Sonic hedgehog is necessary for gland formation in the epithelium using a specific inhibitor of Sonic hedgehog signaling and virus mediated overexpression of Sonic hedgehog. We also show that gland formation is not induced by down-regulation of Sonic hedgehog alone; a mesenchymal influence is also required.