The transcription factor Gli1 acts in the last known step of the Hedgehog signaling, and deregulation of Gli1 is implicated in human cancers. VHL protein is widely expressed in both fetal and adult tissues and acts as a tumor suppressor. Here, we demonstrate the molecular mechanism through which VHL inhibits the Hedgehog-Gli pathway. VHL decreased Gli1-mediated promoter transactivation as well as the expression of Hedgehog/Gli pathway target genes. Nuclear translocation of cytosolic Gli1 protein was inhibited by VHL via protein-protein interaction. These results indicate that overexpression of VHL may antagonize Hedgehog-Gli activation at the post-translational level in Hedgehog pathway-induced cancers.