Polycomb group (PcG) genes are required for stable inheritance of epigenetic states throughout development, a phenomenon termed cellular memory. In Drosophila and mice, the product of the E(z) gene, one of the PcG genes, constitutes the ESC-E(Z) complex and specifically methylates historic H3. It has been argued that this methylation sets the stage for appropriate repression of certain genes. Here, we report the isolation of a well-conserved homolog of E(z), olezh2, in medaka. Hypomorphic knock-down of olezh2 resulted in a cyclopia phenotype and markedly perturbed hedgehog signaling, consistent with our previous report on oleed, a medaka esc. We also found cyclopia in embryos treated with trichostatin A, an inhibitor of historic deacetylase, which is a transient component of the ESC-E(Z) complex. The level of tri-methylation at lysine 27 of historic H3 was substantially decreased in both olezh2 and oleed knock-down embryos, and in embryos with hedgehog signaling perturbed by forskolin. We conclude that the ESC-E(Z) complex per se participates in hedgehog signaling. (C) 2004 Elsevier Inc. All rights reserved.