Activation of the sonic hedgehog (Shh) signaling pathway controls tumorigenesis in a variety of cancers. Here, we show a role for Shh signaling in the promotion of epithelial-to-mesenchymal transition (EMT), tumorigenicity, and stemness in the bladder cancer. EMT induction was assessed by the decreased expression of E-cadherin and ZO-1 and increased expression of N-cadherin. The induced EMT was associated with increased cell motility, invasiveness, and clonogenicity. These progression relevant behaviors were attenuated by treatment with Hh inhibitors cyclopamine and GDC-0449, and after knockdown by Shh-siRNA, and led to reversal of the EMT phenotype. The results with HTB-9 were confirmed using a second bladder cancer cell line, BFTC905 (DM). In a xenograft mouse model TGF-β1 treated HTB-9 cells exhibited enhanced tumor growth. Although normal bladder epithelial cells could also undergo EMT and upregulate Shh with TGF-β1 they did not exhibit tumorigenicity. The TGF-β1 treated HTB-9 xenografts showed strong evidence for a switch to a more stem cell like phenotype, with functional activation of CD133, Sox2, Nanog, and Oct4. The bladder cancer specific stem cell markers CK5 and CK14 were upregulated in the TGF-β1 treated xenograft tumor samples, while CD44 remained unchanged in both treated and untreated tumors. Immunohistochemical analysis of 22 primary human bladder tumors indicated that Shh expression was positively correlated with tumor grade and stage. Elevated expression of Ki-67, Shh, Gli2, and N-cadherin were observed in the high grade and stage human bladder tumor samples, and conversely, the downregulation of these genes were observed in the low grade and stage tumor samples. Collectively, this study indicates that TGF-β1-induced Shh may regulate EMT and tumorigenicity in bladder cancer. Our studies reveal that the TGF-β1 induction of EMT and Shh is cell type context dependent. Thus, targeting the Shh pathway could be clinically beneficial in the ability to reverse the EMT phenotype of tumor cells and potentially inhibit bladder cancer progression and metastasis.