The Hedgehog (Hh) family of secreted proteins act as morphogens to control embryonic patterning and development in a variety of organ systems. Post-translational covalent attachment of cholesterol and palmitate to Hh proteins are critical for multimerization and long range signaling potency. However, the biological impact of lipid modifications on Hh ligand distribution and signal reception in humans remains unclear. In the present study, we report a unique case of autosomal recessive syndromic 46,XY Disorder of Sex Development (DSD) with testicular dysgenesis and chondrodysplasia resulting from a homozygous G287V missense mutation in the hedgehog acyl-transferase (HHAT) gene. This mutation occurred in the conserved membrane bound O-acyltransferase (MBOAT) domain and experimentally disrupted the ability of HHAT to palmitoylate Hh proteins such as DHH and SHH. Consistent with the patient phenotype, HHAT was found to be expressed in the somatic cells of both XX and XY gonads at the time of sex determination, and Hhat loss of function in mice recapitulates most of the testicular, skeletal, neuronal and growth defects observed in humans. In the developing testis, HHAT is not required for Sertoli cell commitment but plays a role in proper testis cord formation and the differentiation of fetal Leydig cells. Altogether, these results shed new light on the mechanisms of action of Hh proteins. Furthermore, they provide the first clinical evidence of the essential role played by lipid modification of Hh proteins in human testicular organogenesis and embryonic development.