The stereotypical projection of retinal ganglion cell (RGC) axons to the optic disc has served as a good model system for studying axon guidance. By both in vitro and in vivo experiments, we show that a secreted molecule, Sonic hedgehog (Shh), may play a critical role in the process. It is expressed in a dynamic pattern in the ganglion cell layer with a relatively higher expression in the center of the retina. Through gel culture and stripe assays, we show that Shh has a dual effect on RGC axonal growth, acting as a positive factor at low concentrations and a negative factor at high concentrations. Results from time-lapse video microscopic and stripe assay experiments further suggest that the effects of Shh on axons are not likely attributable to indirect transcriptional regulation by Shh. Overexpression of Shh protein or inhibition of Shh function inside the retina resulted in a complete loss of centrally directed projection of RGC axons, suggesting that precise regulation of Shh level inside the retina is critical for the projection of RGC axons to the optic disc.