Sonic hedgehog (Shh) acts as a morphogen in many cell types. Recent studies have shown that hedgehog signaling is involved in vascular development as well as postnatal angiogenesis. However, the direct action of Shh on cultured endothelial cells has not been clearly shown. To address this issue, we examined the effect of Shh on morphological changes by murine brain capillary endothelial cells (IBE cells) and human umbilical endothelial cells (HUVECs). Shh induced capillary morphogenesis by these cells. The effect was inhibited by cyclopamine or pertussis toxin. Shh-induced capillary morphogenesis was also blocked by LY294002, a phosphoinositide 3-kinase (PI3-kinase) inhibitor. Shh rapidly increased PI3-kinase activity in IBE cells and HUVECs; this activity was inhibited by cyclopamine. Nuclear localization of Gli1 was increased in Shh-treated IBE cells, which was not affected by LY294002. Actinomycin D and cycloheximide inhibited Shh-induced capillary morphogenesis. In IBE cells expressing kinase-inactive c-Fes, Shh failed to stimulate PI3-kinase activity and capillary morphogenesis. Considered collectively, Shh induced capillary morphogenesis of endothelial cells through both rapid activation of c-Fes/PI3-kinase pathways and transcriptionally regulated pathways.