Human bone marrow stromal/stem cells (hBMSCs) have an inherent tendency to undergo hypertrophy when induced into the chondrogenic lineage using transforming growth factor-beta 1 (TGFβ) in vitro, reminiscent of what occurs during endochondral ossification. Surprisingly, Indian Hedgehog (IHH) has received little attention for its role during hBMSC chondrogenesis despite being considered a master regulator of endochondral ossification. In this study, we investigated the role that endogenously produced IHH plays during hBMSC chondrogenesis. We began by analyzing the expression of IHH throughout differentiation using quantitative polymerase chain reaction and found that IHH expression was upregulated dramatically upon chondrogenic induction and peaked from days 9 to 12 of differentiation, which coincided with a concomitant increase in the expression of chondrogenesis- and hypertrophy-related markers, suggesting a potential role for endogenously produced IHH in driving hBMSC chondrogenesis. More importantly, pharmacological inhibition of Hedgehog signaling with cyclopamine or knockdown of IHH almost completely blocked TGFβ1-induced chondrogenesis in hBMSCs, demonstrating that endogenously produced IHH is necessary for hBMSC chondrogenesis. Furthermore, overexpression of IHH was sufficient to drive chondrogenic differentiation, even when TGFβ signaling was inhibited. Finally, stimulation with TGFβ1 induced a significant and sustained upregulation of IHH expression within 3 h that preceded an upregulation in all cartilage-related genes analyzed, and knockdown of IHH blocked the effects of TGFβ1 entirely, suggesting that the effects of TGFβ1 are being mediated through endogenously produced IHH. Together, our findings demonstrate that endogenously produced IHH is playing a critical role in regulating hBMSC chondrogenesis.