Ad hoc networks of inexpensive, low-powered, portable wireless devices have shown enormous potential in emerging applications. Such applications benefit greatly if the nodes can determine their own location. Traditional localization techniques such as GPS may not be available due to design or environmental constraints. Recent works have proposed using received signal strength (RSS) measurements for localization. These techniques suffer from limited accuracy since the RSS measurements are affected by fading and shadowing of the wireless channel. In this paper we propose the Shadowing Assisted Localization (SAL) algorithm, which employs a model of the shadowing environment to improve localization accuracy. This protocol is unique since it has the flexibility for localization of multi-hop networks in shadowing environments with mobile reference nodes. We show that, in shadowing environments, SAL significantly reduces the mean-squared error (MSE) of node position estimates compared to algorithms that do not consider shadowing.