In bile duct-ligated (BDL) rodents, as in humans with chronic cholangiopathies, biliary obstruction triggers proliferation of bile ductular cells that are surrounded by fibrosis produced by adjacent myofibroblastic cells in the hepatic mesenchyme. The proximity of the myofibroblasts and cholangiocytes suggests that mesenchymal-epithelial crosstalk promotes the fibroproliferative response to cholestatic liver injury. Studying BDL mice, we found that bile duct obstruction induces activity of the Hedgehog (Hh) pathway, a system that regulates the viability and differentiation of various progenitors during embryogenesis. After BDL, many bile ductular cells and fibroblastic-appearing cells in the portal stroma express Hh ligands, receptor and/or target genes. Transwell cocultures of an immature cholangiocyte line that expresses the Hh receptor, Patched (Ptc), with liver myofibroblastic cells demonstrated that both cell types produced Hh ligands that enhanced each other's viability and proliferation. Further support for the concept that Hh signaling modulates the response to BDL was generated by studying PtcLacZ mice, which have an impaired ability to constrain Hh signaling due to a heterozygous deficiency of Ptc. After BDL, PtcLacZ mice upregulated fibrosis gene expression earlier than wild-type controls and manifested an unusually intense ductular reaction, more expanded fibrotic portal areas, and a greater number of lobular necrotic foci. Our findings reveal that adult livers resurrect developmental signaling systems, such as the Hh pathway, to guide remodeling of the biliary epithelia and stroma after cholestatic injury.