Exostosin1 (Ext1) belongs to a family of glycosyltransferases necessary for the synthesis of the heparan sulfate (HS) chains of proteoglycans, which regulate signaling of several growth factors. Loss of tout velu ( ttv), the homolog of Ext1 in Drosophila, inhibits Hedgehog movement. In contrast, we show that reduced HS synthesis in mice carrying a hypomorphic mutation in Ext1 results in an elevated range of Indian hedgehog (Ihh) signaling during embryonic chondrocyte differentiation. Our data suggest a dual function for HS: First, HS is necessary to bind Hedgehog in the extracellular space. Second, HS negatively regulates the range of Hedgehog signaling in a concentration-dependent manner. Additionally, our data indicate that Ihh acts as a long-range morphogen, directly activating the expression of parathyroid hormone-like hormone. Finally, we propose that the development of exostoses in the human Hereditary Multiple Exostoses syndrome can be attributed to activation of Ihh signaling.