During Hedgehog signaling, the ciliary levels of Ptch1 and Smo are regulated by pathway activity. At the basal state, Ptch1 localizes to cilia and prevents the ciliary accumulation and activation of Smo. Upon stimulation with Hedgehog ligand, Ptch1 exits cilia and relieves the inhibition of Smo. Uninhibited Smo concentrates in cilia, becomes activated, and activates the downstream steps of the pathway. Loss of the ubiquitin E3 ligase Arih2 elevates the cellular level of Smo, causes Smo to inappropriately localize to cilia at the at the basal state, and elevates basal expression of Hedgehog responsive genes. Mice express two isoforms of Arih2 with different N-termini, but neither isoform localizes to cilia. Instead, Arih2α is found in the nucleus and Arih2β is found on the cytoplasmic face of the endoplasmic reticulum. Re-expression of endoplasmic reticulum-localized Arih2β, but not nuclear-localized Arih2α returns the cellular Smo levels back to normal and rescues the ciliary Smo accumulation phenotype. When Arih2β is missing, protein aggregates accumulate in the endoplasmic reticulum and the unfolded protein response is activated. Inhibitor studies suggest that Arih2β functions to mark excess or misfolded Smo for degradation by endoplasmic reticulum-associated degradation. When Arih2β is defective, excess Smo, possibly misfolded, is delivered to the cell surface and cilium where it interferes with pathway regulation. These findings add another level of complexity to the Hedgehog pathway.