The transcriptional output of the Sonic Hedgehog morphogenic pathway is orchestrated by three Krüppel family transcription factors, Gli1 to -3, which undergo extensive posttranslational modifications, including ubiquitination and SUMOylation. Here, we report that the sentrin-specific peptidase SENP1 is the specific deSUMOylation enzyme for Gli1. We show that SUMOylation stabilizes Gli1 by competing with ubiquitination at conserved lysine residues and that SUMOylated Gli1 is enriched in the nucleus, suggesting that SUMOylation is a nuclear localization signal for Gli1. Finally, we show that small interfering RNA (siRNA)-mediated knockdown of SENP1 augments the ability of Shh to sustain the proliferation of cerebellar granule cell precursors, demonstrating the physiological significance of the negative regulation of Shh signaling by SENP1.