Hedgehog (Hh) and transforming growth factor-beta (TGF-beta) family members are involved in numerous overlapping processes during embryonic development, hair cycle, and cancer. Herein, we show that TGF-beta induces the expression of the Hh signaling molecules Gli1 and Gli2 in various human cell types, including normal fibroblasts and keratinocytes, as well as various cancer cell lines. Gli2 induction by TGF-beta is rapid, independent from Hh receptor signaling, and requires a functional Smad pathway. Gli1 expression is subsequently activated in a Gli2-dependent manner. In transgenic mice overexpressing TGF-beta1 in the skin, Gli1 and Gli2 expression is also elevated and depends on Smad3. In pancreatic adenocarcinoma cell lines resistant to Hh inhibition, pharmacologic blockade of TGF-beta signaling leads to repression of cell proliferation accompanied with a reduction in Gli2 expression. We thus identify TGF-beta as a potent transcriptional inducer of Gli transcription factors. Targeting the cooperation of Hh and TGF-beta signaling may provide new therapeutic opportunities for cancer treatment.