The secreted glycoprotein sonic hedgehog (Shh) is expressed in the prechordal mesoderm, where it plays a crucial role in induction and patterning of the ventral forebrain. Currently little is known about how Shh is regulated in prechordal tissue. Here we show that in the embryonic chick, Shh is expressed transiently in prechordal mesoderm, and is governed by unprocessed Nodal. Exposure of prechordal mesoderm microcultures to Nodal-conditioned medium, the Nodal inhibitor CerS, or to an ALK4/5/7 inhibitor reveals that Nodal is required to maintain both Shh and Gsc expression, but whereas Gsc is largely maintained through canonical signalling, Nodal signals through a non-canonical route to maintain Shh. Further, Shh expression can be maintained by a recombinant Nodal cleavage mutant, proNodal, but not by purified mature Nodal. A number of lines of evidence suggest that proNodal acts via FGFR3. ProNodal and FGFR3 co-immunoprecipitate and proNodal increases FGFR3 tyrosine phosphorylation. In microcultures, soluble FGFR3 abolishes Shh without affecting Gsc expression. Further, prechordal mesoderm cells in which Fgfr3 expression is reduced by Fgfr3 siRNA fail to bind to proNodal. Finally, targeted electroporation of Fgfr3 siRNA to prechordal mesoderm in vivo results in premature Shh downregulation without affecting Gsc. We report an inverse correlation between proNodal-FGFR3 signalling and pSmad1/5/8, and show that proNodal-FGFR3 signalling antagonises BMP-mediated pSmad1/5/8 signalling, which is poised to downregulate Shh. Our studies suggest that proNodal/FGFR3 signalling governs Shh duration by repressing canonical BMP signalling, and that local BMPs rapidly silence Shh once endogenous Nodal-FGFR3 signalling is downregulated.