Sclerosing stromal tumor (SST) of the ovary is a rare type of sex cord-stromal tumor (SCST), whose genetic underpinning is currently unknown. Here, using whole-exome, targeted capture and RNA-sequencing, we report recurrent FHL2-GLI2 fusion genes in 65% (17/26) of SSTs and other GLI2 rearrangements in additional 15% (4/26) SSTs, none of which are detected in other types of SCSTs (n = 48) or common cancer types (n = 9,950). The FHL2-GLI2 fusions result in transcriptomic activation of the Sonic Hedgehog (SHH) pathway in SSTs. Expression of the FHL2-GLI2 fusion in vitro leads to the acquisition of phenotypic characteristics of SSTs, increased proliferation, migration and colony formation, and SHH pathway activation. Targeted inhibition of the SHH pathway results in reversal of these oncogenic properties, indicating its role in the pathogenesis of SSTs. Our results demonstrate that the FHL2-GLI2 fusion is likely the oncogenic driver of SSTs, defining a genotypic-phenotypic correlation in ovarian neoplasms.