Interactions between cells in the stroma and epithelium facilitate prostate stem cell activity and tissue regeneration capacity. Numerous molecular signal transduction pathways, including the induction of sonic hedgehog (Shh) to activate the Gli transcription factors, are known to mediate the cross-talk of these two cellular compartments. However, the details of how these signaling pathways regulate prostate stem and progenitor cell activity remain elusive. Here we demonstrate that, although cell-autonomous epithelial Shh-Gli signaling is essential to determine the expression levels of basal cell markers and the renewal potential of epithelial stem and progenitor cells, stromal Gli signaling regulates prostate stem and progenitor cell activity by increasing the number and size of prostate spheroids Blockade of stromal Gli signaling also inhibited prostate tissue regeneration The inhibition of stromal Gli signaling suppressed the differentiation of basal and progenitor cells to luminal cells and limited prostate tubule secretory capability. Additionally, stromal cells were able to compensate for the deficiency of epithelial Shh signaling in prostate tissue regeneration. Mechanistically, suppression of Gli signaling increased the signaling factor transforming growth factor β (TGFβ) in stromal cells. Elevation of exogenous TGFβ1 levels inhibited prostate spheroid formation, suggesting that a stromal Gli-TGFβ signaling axis regulates the activity of epithelial progenitor cells. Our study illustrates that Gli signaling regulates epithelial stem cell activity and renewal potential in both epithelial and stromal compartments.