Substantial amount of research has been devoted to the understanding of hedgehog (Hh) signal transduction in the past two decades. Although significant progresses have been made on the understanding of individual signaling components of this pathway, the transcriptional regulation of these components is not as well understood. We have recently characterized a novel Krüppel-associated box (KRAB) domain containing zinc finger transcription factor ZFP932 (formerly known as ZNF431) and showed that it transcriptionally regulates several components of the Hh pathway. ZFP932 is part of the largest KRAB-domain zinc finger transcription factor family in the mammalian genome. However, the in vivo functions for the majority of these transcription factors as well as their downstream targets are not fully understood. ZFP932 is a nuclear KRAB-domain zinc finger transcriptional repressor that recruits HDACs to target promoters. Using the embryonic limb mesenchymal cell line MPLB, we uncovered many potential targets for ZFP932. Among them, Patched1 (Ptch1) was found to be a direct transcriptional target of ZFP932. Promoter analyses using reporter assays as well as electrophoretic mobility shift assays revealed three ZFP932 binding sites in the Ptch1 proximal promoter which are bound by ZFP932 in vivo as demonstrated by chromatin immunoprecipitation. Consistently, overexpression of ZFP932 either in MPLB cells or in Xenopus and mouse embryos strongly repressed Ptch1 expression. Conversely, shRNA knockdown of Zfp932 in MPLB cells elevated Ptch1 expression. In addition to regulating Ptch1 transcription, we demonstrated that ZFP932 also regulates hedgehog signaling as Hh pathway readouts are reduced in ZFP932 overexpression and elevated in ZFP932 knockdown MPLB cells. Moreover, perturbation of ZFP932 expression in C3H10T1/2 cells affected Hh-induced osteoblast differentiation. Together, these results implicate ZFP932 in Hh signaling by transcriptionally regulating Hh signal component expression.