Protein kinase A (PKA) phosphorylates Gli proteins, acting as a negative regulator of the Hedgehog pathway. PKA was recently detected within the cilium, and PKA activity specifically in cilia regulates Gli processing. Using a cilia-targeted genetically encoded sensor, we found significant basal PKA activity. Using another targeted sensor, we measured basal ciliary cAMP that is fivefold higher than whole-cell cAMP. The elevated basal ciliary cAMP level is a result of adenylyl cyclase 5 and 6 activity that depends on ciliary phosphatidylinositol (3,4,5)-trisphosphate (PIP3), not stimulatory G protein (Gαs), signaling. Sonic Hedgehog (SHH) reduces ciliary cAMP levels, inhibits ciliary PKA activity, and increases Gli1. Remarkably, SHH regulation of ciliary cAMP and downstream signals is not dependent on inhibitory G protein (Gαi/o) signaling but rather Ca2+ entry through a Gd3+-sensitive channel. Therefore, PIP3 sustains high basal cAMP that maintains PKA activity in cilia and Gli repression. SHH activates Gli by inhibiting cAMP through a G protein-independent mechanism that requires extracellular Ca2+ entry.