Cholesterol activates the G-protein coupled receptor Smoothened to promote Hedgehog signaling

Overall, the reviewers find the study to be well-controlled, well-executed and appropriately interpreted. They suggest the following major points for consideration in preparing a revised manuscript.

1) The reviewers noted that a paper from Salic lab with similar conclusions was just published (Huang et al. 2016). Although this detracts from the novelty of this manuscript, the work was clearly performed independently and actually greatly increases the confidence in this important breakthrough. The Salic paper should be cited in the revision. The authors are encouraged to expand the Discussion of the manuscript to highlight differences between the two studies and the important points unique to this manuscript. For example, concerning the mechanism by which cholesterol enhances Smo signaling (i.e. does it induce a CRD conformational shift?), some discussion of the differing structural effects of cholesterol on the CRD of the full-length structure (this group's Nature paper) and the soluble CRD (Salic structure) might be informative. That cholesterol does not induce dramatic conformational shifts in the CRD of the full-length protein is now an important issue given the claim of the Salic paper that cholesterol induces a 'dramatic' shift.

The Salic paper (PMID: 27545348), which was not published at the time our manuscript was submitted to eLife, is now cited in the revised manuscript. In response to this recommendation, we have expanded the Discussion section to include a comparison of (1) the SMO CRD structures published in the Salic paper, (2) the SMO CRD structure published by us in eLife in 2013 (PMID: 24171105) and (3) structures of a complete SMO molecule including the CRD and the entire heptahelical transmembrane bundle (7TMD) published very recently by our groups in Nature (PMID: 27437577). It is important to note that the only available structure of cholesterol bound to Smoothened is presented in our Nature paper; the Salic study does not show a structure of cholesterol bound to any domain of Smoothened.

Our analysis, depicted in a new Figure 6 and Figure 6—figure supplement 1, leads us to propose that the relevant conformational change upon cholesterol binding involves a rotation of the CRD on the 7TMD pedestal (shown in the new Figure 6). We disagree with the structural conclusions of the Salic paper, derived entirely from structures of the isolated CRD, that SMO activation is driven by a cholesterol-induced conformational change in the CRD itself because (1) this conformational change was not seen in the context of near full-length SMO containing both the CRD and 7TMD (Figure 6—figure supplement 1A) and (2) this conformational change seems to be stabilized by a non-physiological, zinc-induced crystal contact (Figure 6—figure supplement 1B).

Finally, we have also emphasized some the major limitations of both our studies. Neither our manuscript nor the Salic paper has shown that (1) native Hh ligands modulate cellular cholesterol locally or globally in cells or that (2) Patched 1 regulates cellular/endogenous cholesterol to influence SMO signaling.

2) Figure 3C appears to be n=1. If the conclusions are to be included in the paper, repetitions and statistics should be provided.

Figure 3C has been replaced by a revised panel that includes replicates and statistics.