Wnt signaling defines the colonic epithelial progenitor cell phenotype, and mutations in the gene adenomatous polyposis coli (APC) that activate the Wnt pathway cause the familial adenomatous polyposis coli (FAP) syndrome and most sporadic colon cancers. The mechanisms that regulate the transition of epithelial precursor cells into their differentiated derivatives are poorly characterized. We report that Indian hedgehog (Ihh) is expressed by mature colonocytes and regulates their differentiation in vitro and in vivo. Hedgehog (Hh) signaling restricts the expression of Wnt targets to the base of the colonic crypt in vivo, and transfection of Ihh into colon cancer cells leads to a downregulation of both components of the nuclear TCF4-beta-catenin complex and abrogates endogenous Wnt signaling in vitro. In turn, expression of Ihh is downregulated in polyps of individuals with FAP and expression of doxycycline-inducible dominant negative TCF4 (dnTCF4) restores Ihh expression in APC mutant DLD-1 colon cancer cells. These data identify a new Wnt-Hh axis in colonic epithelial renewal.