Hedgehog (Hh) proteins are morphogens that mediate many developmental processes. Hh signaling is significant for many aspects of embryonic development, whereas dysregulation of this pathway is associated with several types of cancer. Hh proteins require heparan sulfate proteoglycans (HSPGs) for their normal distribution and signaling activity. Here we have used molecular modelling to examine the heparin-binding domain of Shh. In biochemical and cell biological assays the importance of specific residues of the putative heparin-binding domain for signaling were assessed. It was determined that key residues in hShh involved in heparin and HSPG syndecan-4 binding and biological activity included the well known cationic Cardin-Weintraub motif (lysine 32-lysine38), but also a previously unidentified major role for lysine 178. The activity of Shh mutated in these residues was tested by quantitation of alkaline phosphatase activity in C3H10T1/2 cells differentiating into osteoblasts and hShh-inducible gene expression in PANC1 human pancreatic ductal adenocarcinoma (PDAC) cells. Mutated hShhs such as K37/38S, K178S and particularly K37/38/178S that could not interact with heparin efficiently had reduced signaling activity compared to wild type hShh or a control mutation (K74S). In addition, the mutant hShh proteins supported reduced proliferation and invasion of PANC1 cells compared with control hShh proteins, following endogenous hShh depletion by RNAi knockdown. The data correlated with reduced Shh multimerization where the K37/38 and/or K178 mutations were examined. These studies provide a new insight into the functional roles of hShh interactions with HSPGs, which may allow targeting this aspect of hShh biology in, for example, PDAC.