The sonic hedgehog (Shh) pathway is highly activated in a variety of malignancies and plays important roles in tumorigenesis, tumor growth, drug resistance, and metastasis. Our recent study showed that the inhibitors of the Shh pathway such as cyclopamine (CP), a Smothened (SMO) inhibitor, and GANT61, a Gli1 inhibitor, have modest inhibitory effects on thyroid tumor cell proliferation and tumor growth. The objective of this study was to determine whether autophagy was induced by inhibition of the Shh pathway and could negatively regulate GANT61-induced apoptosis. Here we report that inhibition of the Shh pathway by Gli1 siRNA or by cyclopamine and GANT61 induced autophagy in SW1736 and KAT-18 cells, two anaplastic thyroid cancer cell lines; whereas Gli1 overexpression suppressed autophagy. Mechanistic investigation revealed that inhibition of the Shh pathway activated TAK1 and its two downstream kinases, the c-Jun-terminal kinase (JNK) and AMP-activated protein kinase (AMPK). GANT61-induced autophagy was blocked by TAK1 siRNA and the inhibitors of TAK1 (5Z-7-oxozeaenol, 5Z), JNK (SP600125), and AMPK (Compound C, CC). Inhibition of autophagy by chloroquine and 5Z and by TAK1 and Beclin-1 siRNA enhanced GANT61-induced apoptosis and its antiproliferative activity. Our study has shown that inhibition of the Shh pathway induces autophagy by activating TAK1, whereas autophagy in turn suppresses GANT61-induced apoptosis. We have uncovered a previously unrecognized role of TAK1 in Shh pathway inhibition-induced autophagy and apoptosis.