The Hedgehog (Hh) family of signalling molecules is essential for a wide range of developmental processes. Mammalian studies have implicated the Hedgehog pathway in the aetiology of anorectal malformations (ARMs), relatively common congenital anomalies caused by failures in the development of the cloaca. In this study we demonstrate that Hh signalling is absolutely required for the formation of the zebrafish cloaca and that the severity of the posterior gut abnormalities induced by a reduction in Hh activity is dependent on the levels of Hh signal transduction. The complete loss of all Hh activity results in the most severe defects and the critical period for Hh activity is between 34 and 74 hours post fertilisation. Using a range of mutant genotypes that cause notochord and floorplate abnormalities, we show that the source of the Hh signals required for posterior gut formation is the endoderm and not the notochord, as previously postulated in mammalian models of ARMs. We show that Adriamycin, a drug known to cause ARMs in rat, but not chick embryos, has no effect on the development of the zebrafish gastrointestinal tract. These studies establish the zebrafish as a model for ARMs, and for the elucidation of other pathways involved in hindgut developmental processes.