The Hedgehog (HH) signaling pathway is essential for the maintenance and response of several types of stem cells. To study the transcriptional response of stem cells to HH signaling, we searched for proteins binding to GLI proteins, the transcriptional effectors of the HH pathway in mouse embryonic stem (ES) cells. We found that both GLI3 and GLI1 bind to the pluripotency factor NANOG. The ectopic expression of NANOG inhibits GLI1-mediated transcriptional responses in a dose-dependent fashion. In differentiating ES cells, the presence of NANOG reduces the transcriptional response of cells to HH. Finally, we found that Gli1 and Nanog are co-expressed in ES cells at high levels. We propose that NANOG acts as a negative feedback component that provides stem cell-specific regulation of the HH pathway.The HH 3 pathway is essential for regulating biological processes in a diverse set of cells. HH ligands, including Sonic hedgehog, bind to the Patched1 (PTCH1) receptor, which activates the transmembrane protein Smoothened, resulting in pathway activation (for a review, see Ref. 1). The transcriptional response to HH ligands is mediated by the GLI family of transcription factors (GLI1-3), which can act as both transcriptional activators and repressors in a context-dependent fashion (for a review, see Ref. 2). The presence of HH ligand causes the maturation of full-length GLI proteins into their transcriptional activator forms (GLI-A), whereas in the absence of ligand GLI proteins undergo C-terminal truncation and then act as transcriptional repressors (GLI-R). Although GLI2 and GLI3 exist in both activator and repressor forms, GLI2 is the major activator, whereas GLI3 is the major repressor (3-5). In contrast, GLI1 only exists as a full-length activator form (5-7). Gli1 is a direct HH target gene, thereby participating in a positive feedback loop (8 -11).The HH pathway was initially characterized for its role in regulating embryonic development, but it also has critical roles in regulating the homeostasis of several adult tissues (for a review, see Ref. 12). In particular, HH regulates two major neural stem cell populations in the brain, the ventral subventricular zone and subgerminal zone, as well as quiescent hair follicle stem cells (13). In the absence or inhibition of the HH pathway, these tissues undergo a marked reduction in the number of proliferating cells, indicating that the pathway is required for normal proliferation (14). Conversely, hyperactivation of the HH pathway results in an expanded population of neural stem cells. In this context, the progeny of neural stem cells is shifted so that they preferentially give rise to two daughter stem cells instead of producing transient amplifying cells capable of generating differentiated progeny (15). Together these results indicate that the levels of HH perceived by neural stem cells regulate the balance between generating stem cells and differentiated progenitors. In addition to regulating normal neural development, various studies have suggested that populations...