Hedgehog proteins exert critical roles in embryogenesis and require heparan sulfate proteoglycans (HS-PGs) for action. Indian hedgehog (Ihh) is produced by prehypertrophic chondrocytes in developing long bones and regulates chondrocyte proliferation and other events, but it is not known whether it requires HS-PGs for function. Because the HS-PG syndecan-3 is preferentially expressed by proliferating chondrocytes, we tested whether it mediates Ihh action. Primary chick chondrocyte cultures were treated with recombinant Ihh (rIhh-N) in absence or presence of heparinase I or syndecan-3 neutralizing antibodies. While rIhh-N stimulated proliferation in control cultures, it failed to do so in heparinase-or antibody-treated cultures. In reciprocal gain-of-function studies, chondrocytes were made to overexpress syndecan-3 by an RCAS viral vector. Cells became more responsive to rIhh-N, but even this response was counteracted by heparinase or antibody treatment. To complement the in vitro data, RCAS viral particles were microinjected in day 4 -5 chick wing buds and effects of syndecan-3 misexpression were monitored over time. Syndecan-3 misexpression led to widespread chondrocyte proliferation and, interestingly, broader expression and distribution of Ihh. In addition, the syndecan-3 misexpressing skeletal elements were short, remained cartilaginous, lacked osteogenesis, and exhibited a markedly reduced expression of collagen X and osteopontin, products characteristic of hypertrophic chondrocytes and bone cells. The data are the first to indicate that Ihh action in chondrocyte proliferation involves syndecan-3 and to identify a specific member of the syndecan family as mediator of hedgehog function. Developmental Dynamics 229:607-617, 2004.