The enteric nervous system (ENS) is principally derived from vagal-level neural crest cells that migrate rostrocaudally along the entire length of the gastrointestinal tract, giving rise to neurons and glial cells in two ganglionated plexuses. Incomplete migration of vagal-derived enteric neural crest cells (ENCCs) leads to Hirschsprung disease (HD), a congenital disorder characterized by the absence of enteric ganglia along variable lengths of the distal intestine. Inductive interactions between gut epithelium and mesenchyme have been suggested to regulate the migration and differentiation of ENCCs. However, little is known about the function of epithelial derived factors, such as Sonic hedgehog (Shh), how they influence hindgut mesenchyme derived factors and how they regulate extracellular matrix expression during ENS development. Hindgut from 6 day old chicken embryo was cultured in the presence of Shh protein or Shh overexpressing RCAS-virus. In presence of Shh the hindgut is aganglionic, while in the presence of Shh inhibitor large, ectopic ganglia developed. Shh treatment strongly induced the expression of extracellular matrix versican and collagen type IX, whereas cyclopamine reduced the expression pattern of these inhibitory matrix molecules. These results indicate that versican and collagen IX is a candidate for mediating the effects of Shh on ENCC migration. Shh also inhibited the proliferation and promoted the differentiation of ENCCs. Abnormalities of NCC migration and extracellular pattern formation are characteristic of two human intestinal disorders, HD and intestinal neuronal dysplasia. Our results support an essential role for epithelial-mesenchymal interactions in these aspects of ENS development.