Scleral ossicles are dermal bones that are present in the eye of many vertebrates. Despite this, little is understood about their development. This study investigates the cellular dynamics during and after induction, and attempts to identify inducing factors. Both cell death and proliferation were found to play limited roles in mesenchymal condensation formation, but are involved in development of the inducing epithelium overlying the presumptive ossicle. Real-time reverse transcriptase polymerase chain reaction of candidate genes identified significant increases in sonic hedgehog (SHH) expression. In situ hybridization confirmed that SHH is exclusively expressed in the conjunctival (scleral) papillae and not in the mesenchyme. Direct localized inhibition of Hedgehog signaling, by means of cyclopamine, supports the finding that SHH may play a role in scleral ossicle induction. In addition, a nonfluctuating asymmetry with respect to the number of ossicles per eye was found. This study provides significant insight into understanding the development of the neural crest derived dermal bones. Developmental Dynamics 237: 3240 -3251, 2008.