Tumorigenesis is frequently accompanied by enhanced rRNA transcription, but the signaling mechanisms responsible for such enhancement remain unclear. Here, we report evidence suggesting a novel link between deregulated Hedgehog signaling and the augmented rRNA transcription in cancer. Aberrant activation of the Hedgehog pathway in keratinocytes is a hallmark of basal cell carcinoma (BCC), the most common cancer in light-skinned individuals. We show that Gli proteins, downstream effectors of the Hedgehog pathway, increase expression of a novel rRNA gene (rDNA) transcription factor, basonuclin, whose expression is markedly elevated in BCCs. The promoter of the human basonuclin gene contains a Gli-binding site, which is required for Gli protein binding and transcriptional activation. We show also that the level of 47S pre-rRNA is much higher in BCCs than in normal epidermis, suggesting an accelerated rRNA transcription in the neoplastic cells. Within BCC, those cells expressing the highest level of basonuclin also exhibit the greatest increase in 47S pre-rRNA, consistent with a role for basonuclin in increasing rRNA transcription in these cells. Our data suggest that Hedgehog-Gli pathway enhances rRNA transcription in BCC by increasing basonuclin gene expression.