The Shh protein contains both N-terminal and C-terminal lipids. The functional redundancy of these lipid moieties is presently unclear. Here, we compare the relative roles of the N- and C-terminal lipids in early rat striatal neuronal differentiation, membrane association and multimerization, and ventralizing activity in the zebrafish forebrain. We show that these lipid act synergistically in cell tethering and the formation of a large (L) multimer (669 kDa). However, the C-terminal lipid antagonizes the rat striatal neuronal differentiation-inducing activity of the N-terminal lipid. In addition, multimerization is required but not sufficient for the differentiation-inducing activity. Based on the presence of different N- and C-lipid-containing Shh proteins in the rat embryo, and on their different activities, we propose that both N- and C-terminal lipids are required for the formation of multimers involved in long-range signaling, and that the C-terminal lipid may function in long-range signaling by reducing Shh activity until it reaches its long-range target. Comparative analysis of the ventralizing activities of different N- and C-terminal lipid-containing Shh proteins in the zebrafish forebrain shows that the presence of at least one lipid is required for signaling activity, suggesting that lipid modification of Shh is a conserved requirement for signaling in the forebrain of rodents and zebrafish.