Morphogens act in developing tissues to control the spatial arrangement of cellular differentiation. The activity of a morphogen has generally been viewed as a concentration-dependent response to a diffusible signal, but the duration of morphogen signalling can also affect cellular responses. One such example is the morphogen sonic hedgehog (SHH). In the vertebrate central nervous system and limbs, the pattern of cellular differentiation is controlled by both the amount and the time of SHH exposure. How these two parameters are interpreted at a cellular level has been unclear. Here we provide evidence that changing the concentration or duration of SHH has an equivalent effect on intracellular signalling. Chick neural cells convert different concentrations of SHH into time-limited periods of signal transduction, such that signal duration is proportional to SHH concentration. This depends on the gradual desensitization of cells to ongoing SHH exposure, mediated by the SHH-dependent upregulation of patched 1 (PTC1), a ligand-binding inhibitor of SHH signalling. Thus, in addition to its role in shaping the SHH gradient, PTC1 participates cell autonomously in gradient sensing. Together, the data reveal a novel strategy for morphogen interpretation, in which the temporal adaptation of cells to a morphogen integrates the concentration and duration of a signal to control differential gene expression.