This work shows that desert hedgehog (dhh), a signalling molecule expressed by Schwann cells, is essential for the structural and functional integrity of peripheral nerve. Dhh-null nerves display multiple abnormalities that affect myelinating and non-myelinating Schwann cells, axons, vasculature and immune cells. Myelinated fibres of these mice have a significantly increased ( > 2x) number of Schmidt-Lanterman incisures (SLI) and connexin (Cx)29, a molecular component of SLI, is strongly up-regulated. Crossing dhh-null mice with myelin basic protein (MBP)-deficient shiverer (shi) mice, which also have increased SLI numbers, results in further increased SLI, suggesting that Dhh and MBP control SLI by different mechanisms. Unmyelinated fibres are also affected, containing many fewer axons per Schwann cell in transverse profiles, while the total number of unmyelinated axons is reduced by approximately a third. In dhh-null mice, the blood-nerve barrier is permeable and neutrophils and macrophage numbers are elevated, even in uninjured nerves. Dhh-null nerves also lack the largest diameter myelinated fibres, have elevated numbers of degenerating myelinated axons and contain regenerating fibres. Transected dhh nerves degenerate faster than wildtype controls. This demonstrates that a single identified glial signal, Dhh, plays a critical trophic role in maintaining the integrity of peripheral nervous tissue, in line with its critical role in nerve sheath development (Parmantier et al., 1999). The complexity of the defects raises a number of important questions about the Dhh-dependent cell-cell signalling network in peripheral nerves.