Sonic hedgehog (Shh) is necessary for sustaining the proliferation of neural stem cells (NSC), yet little is known about its mechanisms. Whereas Gli1, Gli2, and Gli3, the primary mediators of Shh signaling, were all expressed in hippocampal neural progenitors, Shh-treatment of NSCs induced only Gli1 expression. Acute depletion of Gli1 in postnatal NSCs by short-hairpin RNA decreased proliferation, while germline deletion of Gli1 did not affect NSC proliferation, suggesting a difference in mechanisms of Gli1 compensation that may be developmentally-dependant. To determine whether Gli1 was sufficient to enhance NSC proliferation, we overexpressed this mitogen and were surprised to find that Gli1 resulted in decreased proliferation, accumulation of NSCs in the G2/M phase of cell cycle, and apoptosis. In contrast, Gli1-expressing lineage-restricted neural precursors demonstrated a 4.5-fold proliferation enhancement. Expression analyses of Gli1-expressing NSCs identified significant induction of Gadd45a and decreased cyclin A2 and Stag1 mRNA, genes involved in the G2-M transition and apoptosis. Furthermore, Gadd45a overexpression was sufficient to partially recapitulate the Gli1-induced G2/M accumulation and cell death of NSCs. In contrast to normal stem cells, tumor-derived stem cells had markedly higher basal Gli1 expression and did not undergo apoptosis with further elevation of Gli1. Our data suggest that Gli1-induced apoptosis may serve as a protective mechanism against premature mitosis and may give insight into mechanisms by which non-malignant stem cells restrain hyperproliferation in the context of potentially transforming mitogenic signals. Tumor derived stem cells apparently lack these mechanisms, which may contribute to their unrestrained proliferation and malignant potential.