Sonic hedgehog (Shh) signaling influences neurogenesis and neural patterning during the development of central nervous system. Dysregulation of Shh signaling in brain leads to neurological disorders like autism spectrum disorder, depression, dementia, stroke, Parkinson’s diseases, Huntington’s disease, locomotor deficit, epilepsy, demyelinating disease, neuropathies as well as brain tumors. The synthesis, processing and transport of Shh ligand as well as the localization of its receptors and signal transduction in the central nervous system has been carefully reviewed. Further, we summarize the regulation of small molecule modulators of Shh pathway with potential in neurological disorders. In conclusion, further studies are warranted to demonstrate the potential of positive and negative regulators of the Shh pathway in neurological disorders.