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The human PTCH2 gene is highly similar to PTCH1, a tumour suppressor gene frequently mutated in basal cell carcinoma and several other tumour types. PTCH1 is a transmembrane protein believed to inhibit another transmembrane protein SMO (Smoothened), which mediates HH (Hedgehog) signalling. In this study, we analysed the biological properties of several PTCH2 splice variants. An mRNA form that lacked the last exon was abundantly expressed in all tissues examined, in contrast with the one that included it. Moreover, a transcript lacking exon 9, which is a part of a conserved sterol-sensing domain, was identified in intestine, prostate and cerebellum. In ovary, spleen, testis, cerebellum and skin, an mRNA lacking both exons 9 and 10 could also be observed. The different PTCH2 isoforms localized in the cytoplasm were capable of internalizing the N-terminal fragment of Sonic HH (Shh-N). Additionally, the PTCH2 gene was found to be a target of HH signalling. PTCH2 promoter regulation assays demonstrated that only one of the PTCH2 variants could inhibit the activity of SHH-N, whereas none was capable of inhibiting the activated form of SMO (SMO-M2) and this contrasts with PTCH1. Despite the fact that the PTCH2 isoforms lacked the ability to inhibit SMO-M2 activity, all PTCH2 variants as well as PTCH1, on co-transfection with Smo, were able to change Smo localization from being largely dispersed in the cytoplasm to the juxtanuclear region. Furthermore, the PTCH2 isoforms and PTCH1 co-localized in doubly transfected cells and an interaction between them was confirmed using immunoprecipitation assays. Using Ptch1(-/-) mouse cells, it was shown that the PTCH2 variants and PTCH1 differentially act to reconstitute not only the SHH-but also the Desert HH-dependent transcriptional response. We conclude that in spite of their structural similarities, the PTCH2 isoforms have distinct functional properties when compared with PTCH1.