Hedgehog (HH) signalling is a key controller of embryonic body patterning and adult stem cell regulation. Abnormal signalling often leads to severe developmental disorders and human cancers. HH ligands, such as Sonic HH (SHH), are important regulators of the HH pathway and take the lead in initiating signalling: Covalently lipid-modified at their N- and C-terminus, HH ligands bind to the cell surface receptor Patched 1 (PTCH1). Once rendered inactive, PTCH1 is unable to suppress the function of Smoothened (SMO), a G protein-coupled receptor, which then transmits the HH signal across the plasma membrane. While it has been found that the N-terminal palmitoyl group of the HH ligand is involved in PTCH1 binding and inactivation, the function of the C-terminal cholesterol moiety has remained elusive. In this work, we determined high-resolution crystal structures of the human PTCH1 extracellular domain 1 and 2 (ECD1 and 2) in complex with nanobodies and identified a hydrophobic cavity for sterol binding in PTCH1ECD1 [1]. Combined with functional data and reassessment of previously solved SHH-PTCH1 cryo-electron microscopy structures [2], we provide unique insights on how the SHH C-terminal cholesterol group inserts into PTCH1ECD1, offering an unprecedented view of the lipid-based interaction. This new model further explains how disease-associated mutations impair the stability of PTCH1ECD1 and PTCH1ECD2 and provides a framework for proposing a mechanism of sterol transport [3].