Variants of hedgehog protein that contain N-terminal modifications are described that can block hedgehog function; thus allowing these variants to serve as functional antagonists. These peptides have a primary amino acid sequence lacking the ability to elicit a hedgehog-dependent response in C3H 10T1/2 cells but having the ability to bind to the hedgehog receptor, patched-1. Methods for producing such functional antagonists and methods of using the functional antagonists are also described.