The segment polarity gene cubitus interruptus (ci) encodes a transcriptional effector of Hedgehog (Hh) signaling in Drosophila. The Ci gene product is a zinc finger protein belonging to the Gli family of sequence-specific DNA binding proteins. After gastrulation, segmental expression of the segment polarity gene wingless (wg) is maintained by Hh signaling in a pathway requiring Ci activity. In the absence of Hh or Ci activity, wg expression is initiated normally and then fades in the ectoderm after stage 10. We have previously identified a wingless enhancer region whose Ci binding sites mediate Ci-dependent transcriptional activation in transiently transfected cells. Here we demonstrate that Hh and Patched (Ptc) act through those Ci binding sites to modulate the level of Ci-dependent transcriptional activation in S2 cells. We demonstrate that this same wg enhancer region is Hh responsive in vivo and that its Ci binding sites are necessary for its activity. This provides strong evidence that Hh affects wg transcription through post-translational activation of Ci.