Sonic Hedgehog (Shh) has a catalytic cleft characteristic for zinc metallopeptidases. Nevertheless, the putative peptidase activity of Shh is dispensable for activation of the response in vitro and was deemed "pseudo-active". Still, Shh has significant sequence similarities with some bacterial peptidoglycan metallopeptidases defining a subgroup within the M15A family that, besides having the characteristic zinc coordination domain, can bind two calcium ions. Extracellular matrix (ECM) components in animals include heparan-sulfate proteoglycans, which are analogs of bacterial peptidoglycan and thus potential peptidase substrates. We found that the putative metallopeptidase activity of Shh is required for its association with ECM as well as for non-cell autonomous signaling. The putative peptidase requires the presence of at least 0.1 µM zinc and is inhibited by mutations affecting critical catalytic residues as well as extracellular calcium. Our results indicate that Shh is a calcium-regulated zinc metallopeptidase.