Approximately 1,000,000 epithelial skin cancers are diagnosed in the United States each year and most are basal cell carcinomas (BCCs). The pathogenesis of these tumours involves constitutive activation of the Sonic hedgehog (Shh) signalling pathway (for review, see ref. 1). In many BCCs this can be attributed to loss-of-function mutations of PTCH (refs 2, 3), which encodes a SHH receptor and antagonist. The specific downstream effector in the Shh pathway leading to cancer development is unknown. Here we show that transgenic mice overexpressing the transcription factor Gli2 in cutaneous keratinocytes develop multiple BCCs. These results establish Gli2 as a potent oncogene in skin and suggest a pivotal role for this transcription factor in the development of human BCC.