The embryonic mammary gland and hair follicle are both derived from the ventral ectoderm, and their development depends on a number of common fundamental developmental pathways. While the Hedgehog (Hh) signaling pathway is required for hair follicle morphogenesis, the role of this pathway during embryonic mammary gland development remains undetermined. We demonstrate here that, unlike the hair follicle, both Shh and Ihh are expressed in the developing embryonic mouse mammary rudiment as early as E12.5. In Shh(-/-) embryos, hair follicle development becomes arrested at an early stage, while the mammary rudiment, which continues to express Ihh, develops in a manner indistinguishable from that of wild-type littermates. The five pairs of mammary buds in Shh(-/-) female embryos exhibit normal branching morphogenesis at E16.5, forming a rudimentary ductal structure identical to wild-type embryonic mammary glands. We further demonstrate that loss of Hh signaling causes altered cyclin D1 expression in the embryonic dermal mesenchyme. Specifically, cyclin D1 is expressed at E14.5 principally in the condensed mesenchymal cells of the presumptive hair follicles and in both mesenchymal and epithelial cells of the mammary rudiments in wild-type and Shh-deficient embryos. By E18.5, robust cyclin D1 expression is maintained in mammary rudiments of both wild-type and Shh-deficient embryos. In hair follicles of wild-type embryos by E18.5, cyclin D1 expression switches to follicular epithelial cells. In contrast, strong cyclin D1 expression is observed principally in the mesenchymal cells of arrested hair follicles in Shh(-/-) embryos at E18.5. These data reveal that, despite the common embryonic origin of hair follicles and mammary glands, distinct patterns of Hh-family expression occur in these two tissues. Furthermore, these data suggest that cyclin D1 expression in the embryonic hair follicle is mediated by both Hh-independent and Hh-dependent mechanisms.