MSCs (mesenchymal stem cells) may be promising seed cells for tissue regeneration because of their self-renewal and multi-differentiation potential. Shh (sonic hedgehog) is involved in the skeletal formation during embryo development and skeletal regeneration. However, how Shh regulates the biological characteristics of BM-MSCs (bone marrow-derived MSCs) is poorly understood. We have investigated the effect of rShh-N (recombinant N-terminal Shh) on the proliferation and osteogenic differentiation of rBM-MSCs (rat BM-MSCs) in vitro. rBM-MSCs were treated with rShh-N at concentrations up to 200 ng/ml. Proliferation and colony-forming ability of rBM-MSCs were increased in a dose-dependent manner. rShh-N increased the ratio of cells in S and G2/M phase, as well as the number of Ki-67+ cells. In addition, ALP (alkaline phosphatase) activity and matrix mineralization were enhanced by 200 ng/ml rShh-N. Real-time PCR showed that rShh-N (200 ng/ml) up-regulated the expression of genes encoding Cbfa-1 (core-binding factor α1), osteocalcin, ALP and collagen type I in rBM-MSCs. This information reveals some potential of rShh-N in the therapeutics of bone-related diseases.