Hedgehog (Hh) pathway activation promotes tumors in several endodermally derived tissues, but its role in the pathogenesis of hepatocellular carcinoma (HCC) is unknown. Although normal hepatocytes lack Hh signaling, activation of the Hh pathway in endodermal progenitors is required for liver development. Thus, we hypothesized that hepatocarcinogenesis may involve regulation of Hh signaling. This pathway is activated when Hh ligand binds to its receptor, Patched (PTC). In an unoccupied state, PTC normally functions as a tumor suppressor that inhibits Smoothened (SMO), a proto-oncoprotein, from activating downstream components and transcription of target genes. Here we show that in HCCs, overexpression of the Smo proto-oncogene, as well as an increase in the stoichiometric ratio of Smo to Ptc mRNA levels, correlated with tumor size, a prognostic indicator in HCC biology. In one tumor we identified a novel Smo mutation in an evolutionarily conserved residue. We also demonstrated that HCC cell lines (HepG2 and Hep3B) expressed Hh pathway components and activated Hh transcriptional targets. In Hep3B cells, cyclopamine, an inhibitor of wild-type SMO, had no effect, but KAAD-cyclopamine, a blocker of oncogenic SMO, inhibited Hh signaling activity by 50%, decreased expression of the hepatocarcinogenic oncogene, c-myc, by 8-fold, and inhibited the growth rate of Hep3B cells by 94%. These data support our hypothesis that Hh signaling is dysregulated in human hepatocarcinogenesis. We demonstrate that overexpression and/or tumorigenic activation of the Smo proto-oncogene mediates c-myc overexpression which plays a critical role in hepatocarcinogenesis and suggests that Smo is a prognostic factor in HCC tumorigenesis.