Ligand-dependent activation of the hedgehog (Hh) signalling pathway has been associated with tumorigenesis in a number of human tissues. Here we show that, although previous reports have described a cell-autonomous role for Hh signalling in these tumours, Hh ligands fail to activate signalling in tumour epithelial cells. In contrast, our data support ligand-dependent activation of the Hh pathway in the stromal microenvironment. Specific inhibition of Hh signalling using small molecule inhibitors, a neutralizing anti-Hh antibody or genetic deletion of smoothened (Smo) in the mouse stroma results in growth inhibition in xenograft tumour models. Taken together, these studies demonstrate a paracrine requirement for Hh ligand signalling in the tumorigenesis of Hh-expressing cancers and have important implications for the development of Hh pathway antagonists in cancer.