The secreted protein Sonic Hedgehog (SHH) acts in graded fashion to pattern the dorsal–ventral axis of the vertebrate neural tube. This is a dynamic process in which increasing concentrations and durations of exposure to SHH generate neurons with successively more ventral identities. Interactions between the receiving cells and the graded signal underpin the mechanism of SHH action. In particular, negative feedback, involving proteins transcriptionally induced or repressed by SHH signaling, plays an essential role in shaping the graded readout. On one hand, negative feedback controls, in a noncell-autonomous manner, the distribution of SHH across the field of receiving cells. On the other, it acts cell-autonomously to convert different concentrations of SHH into distinct durations of intracellular signal transduction. Together, these mechanisms exemplify a strategy for morphogen interpretation, which we have termed temporal adaptation that relies on the continuous processing and refinement of the cellular response to the graded signal.