The Hedgehog (Hh) signaling pathway play critical roles in embryonic development and adult tissue homeostasis. A critical step in Hh signal transduction is how Hh receptor Patched (Ptc) inhibits the atypical G protein-coupled receptor Smoothened (Smo) in the absence of Hh and how this inhibition is release by Hh stimulation. It is unlikely that Ptc inhibits Smo by direct interaction. Here we discuss how Hh regulates the phosphorylation and ubiquitination of Smo, leading to cell surface and ciliary accumulation of Smo in Drosophila and vertebrate cells, respectively. In addition, we discuss how PI(4)P phospholipid acts in between Ptc and Smo to regulate Smo phosphorylation and activation in response to Hh stimulation.