The hydra mutants of Arabidopsis are characterized by a pleiotropic phenotype that shows defective embryonic and seedling cell patterning, morphogenesis, and root growth. We demonstrate that the HYDRA1 gene encodes a Delta8-Delta7 sterol isomerase, whereas HYDRA2 encodes a sterol C14 reductase, previously identified as the FACKEL gene product. Seedlings mutant for each gene are similarly defective in the concentrations of the three major Arabidopsis sterols. Promoter::reporter gene analysis showed misexpression of the auxin-regulated DR5 and ACS1 promoters and of the epidermal cell file-specific GL2 promoter in the mutants. The mutants exhibit enhanced responses to auxin. The phenotypes can be rescued partially by inhibition of auxin and ethylene signaling but not by exogenous sterols or brassinosteroids. We propose a model in which correct sterol profiles are required for regulated auxin and ethylene signaling through effects on membrane function.