Hedgehog (Hh) signaling is indispensable in embryonic development, and its dysregulated activity results in severe developmental disorders as shown by genetic models of naturally occurring mutations in animal and human pathologies. Hh signaling also functions in postembryonic development and adult tissue homeostasis, and its aberrant activity causes various human cancers. Better understanding of molecular regulators of Hh signaling is of fundamental importance in finding new strategies for pathway modulation. Here, we identify liver X receptors (LXRs), members of the nuclear hormone receptor family, as previously unrecognized negative regulators of Hh signaling. Activation of LXR by specific pharmacological ligands, TO901317 and GW3965, inhibited the responses of pluripotent bone marrow stromal cells and calvaria organ cultures to sonic Hh, resulting in the inhibition of expression of Hh-target genes, Gli1 and Patched1, and Gli-dependent transcriptional activity. Moreover, LXR ligands inhibited sonic Hh-induced differentiation of bone marrow stromal cells into osteoblasts. Elimination of LXRs by small interfering RNA inhibited ligand-induced inhibition of Hh target gene expression. Furthermore, LXR ligand did not inhibit Hh responsiveness in mouse embryonic fibroblasts that do not express LXRs, whereas introduction of LXR into these cells reestablished the inhibitory effects. Daily oral administration of TO901317 to mice after 3 d significantly inhibited baseline Hh target-gene expression in liver, lung, and spleen. Given the importance of modulating Hh signaling in various physiological and pathological settings, our findings suggest that pharmacological targeting of LXRs may be a novel strategy for Hh pathway modulation.