Heterozygous missense mutations in IHH result in Brachydactyly type A1 (BDA1; OMIM 112500), a condition characterized by the shortening of digits due to hypoplasia/aplasia of the middle phalanx. Indian Hedgehog signaling regulates the proliferation and differentiation of chondrocytes and is essential for endochondral bone formation. Analyses of activated IHH signaling in C3H10T1/2 cells showed that three BDA1-associated mutations (p.E95K, p.D100E and p.E131K) severely impaired the induction of targets such as Ptch1 and Gli1. However, this was not a complete loss of function, suggesting that these mutations may affect the interaction with the receptor PTCH1 or its partners, with an impact on the induction potency. From comparative microarray expression analyses and quantitative real-time PCR, we identified three additional targets, Sostdc1, Penk1 and Igfbp5, which were also severely affected. Penk1 and Igfbp5 were confirmed to be regulated by GLI1, while the induction of Sostdc1 by IHH is independent of GLI1. SOSTDC1 is a BMP antagonist, and altered BMP signaling is known to affect digit formation. The role of Penk1 and Igfbp5 in skeletogenesis is not known. However, we have shown that both Penk1 and Igfbp5 are expressed in the interzone region of the developing joint of mouse digits, providing another link for a role for IHH signaling in the formation of the distal digits.