Expression of vertebrate Sonic hedgehog protein is extremely localized to the notochord and spinal cord floorplate. The floorplate forms where Sonic hedgehog levels are highest, and motor neurons form where Sonic hedgehog levels are lower; this suggests that a notochord-releaseed Sonic hedgehog protein gradient patterns at least the ventral portion of the neural tube. Addition of cells producing Sonic hedgehog has a similar effect as adding an additional notochord: an ectopic floorplate and motor neurons.
The role of Sonic hedgehog was confirmed via Shh-/- knockout mice. Loss-of-function homozygotes die as fetuses and exhibit severe defects consistent with Sonic hedgehog's aforementioned inductions: the floorplate of the neural tube, with mutant fetuses exhibiting cyclopia (eye and nose primordia fused along a degenerated ventral midline); and sclerotomes, with mutant fetuses lacking vertebrae and ribs.
In humans, mutant Sonic hedgehog range in severity from mild (two front incisors fused together) to severe (holoprosencephaly, leading to cyclopia and a single front hemisphere of the brain. Different individuals with the same mutation can have different phenotypes, suggesting that modifying genes affect the severity of the phenotype. The fetus' prenatal environment may also impact the phenotype.
Read about Sonic hedgehog in lung development, where Shh inhibits FGF expression and FGF induces cell proliferation.