Germline mutations in the human homolog of the patched1 (PTCH1) are associated with basal cell nevus carcinoma syndrome (BCNS or Gorlin syndrome), which is characterized by developmental anomalies, radiation hypersensitivity and a predisposition to medulloblastomas and skin tumors. Patched1 (Ptc1) functions as a receptor for Sonic hedgehog (Shh) in a wide range of biological processes. Binding of Shh to Ptc1 results in activation of Smoothened (Smo), which in turn stimulates expression of downstream target genes including Ptc1 and Gli1. Gli1 is a member of a family of DNA-binding zinc-finger proteins, including Gli2 and Gli3, that function in transcription control. Here, we report that inactivation of both Gli1 alleles in Ptc1+/- mice significantly reduces spontaneous medulloblastoma formation. Therefore, Gli1 is not only a marker of pathway activation but also plays a functional role in medulloblastoma formation. Interestingly, Gli2 levels were elevated in medulloblastoma cells but not in normal granule neuron precursors during cerebellar development in mice lacking Gli1. In cultured fibroblasts, Gli1 was more potent than Gli2 at inducing cell transformation. These results demonstrate that Gli1 plays a central role in medulloblastoma formation in Ptc1+/- mice and that Gli2 may also contribute to oncogenesis.