Thyroid hormone (TH) is an important regulator of growth, development, and metabolism. Most of the active TH T₃ is generated by peripheral TH metabolism mediated by the iodothyronine deiodinases. Type 3 deiodinase (D3) inactivates T₃ via specific deiodination reactions. It is an oncofetal protein frequently expressed in neoplastic tissues and is a direct target of the sonic hedgehog (Shh) pathway in basal cell carcinomas (BCCs). However, the molecular mechanisms triggered by T₃ in BCC are still mostly unrevealed. Here, we demonstrate that D3 action is critical in the proliferation and survival of BCC cells. D3 depletion or T₃ treatment induce apoptosis of BCC cells and attenuate Shh signaling. This is achieved through a direct impairment of Gli2 protein stability by T₃. T₃ induces protein kinase A, which in turn destabilizes Gli2 protein via its C-terminal degron. Finally, in a mouse model of BCC, T₃-topical treatment significantly reduces tumor growth. These results demonstrate the existence of a previously unrecognized cross talk between TH and Gli2 oncogene, providing functional and mechanistic evidence of the involvement of TH metabolism in Shh-induced cancer. TH-mediated Gli2 inactivation would be beneficial for therapeutically purposes, because the inhibition of Shh-Gli2 signaling is an attractive target for several anticancer drugs, currently in clinical trials.