The Hedgehog (Hh) signaling pathway has critical functions during embryogenesis of both invertebrate and vertebrate species ; defects in this pathway in humans can cause developmental disorders as well as neoplasia . Although the Gli1, Gli2, and Gli3 zinc finger proteins are known to be effectors of Hh signaling in vertebrates, the mechanisms regulating activity of these transcription factors remain poorly understood  . In Drosophila, activity of the Gli homolog Cubitus interruptus (Ci) is likely to be modulated by its interaction with a cytoplasmic complex containing several other proteins  , including Costal2, Fused (Fu), and Suppressor of fused (Su(fu)), the last of which has been shown to interact directly with Ci . We have cloned mouse Suppressor of fused (mSu(fu)) and detected its 4.5 kb transcript throughout embryogenesis and in several adult tissues. In cultured cells, mSu(fu) overexpression inhibited transcriptional activation mediated by Sonic hedgehog (Shh), Gli1 and Gli2. Co-immunoprecipitation of epitope-tagged proteins indicated that mSu(fu) interacts with Gli1, Gli2, and Gli3, and that the inhibitory effects of mSu(fu) on Gli1's transcriptional activity were mediated through interactions with both amino- and carboxy-terminal regions of Gli1. Gli1 was localized primarily to the nucleus of both HeLa cells and the Shh-responsive cell line MNS-70; co-expression with mSu(fu) resulted in a striking increase in cytoplasmic Gli1 immunostaining. Our findings indicate that mSu(fu) can function as a negative regulator of Shh signaling and suggest that this effect is mediated by interaction with Gli transcription factors.