Hedgehog (Hh) signaling is required for osteoblast differentiation from mesenchymal progenitors during endochondral bone formation. However, the role of Hh signaling in differentiated osteoblasts during adult bone homeostasis remains to be elucidated. We found that in the postnatal bone, Hh signaling activity was progressively reduced as osteoblasts mature. Upregulating Hh signaling selectively in mature osteoblasts led to increased bone formation and excessive bone resorption. As a consequence, these mutant mice showed severe osteopenia. Conversely, inhibition of Hh signaling in mature osteoblasts resulted in increased bone mass and protection from bone loss in older mice. Cellular and molecular studies showed that Hh signaling indirectly induced osteoclast differentiation by upregulating osteoblast expression of PTHrP, which promoted RANKL expression via PKA and its target transcription factor CREB. Our results demonstrate that Hh signaling in mature osteoblasts regulates both bone formation and resorption and that inhibition of Hh signaling reduces bone loss in aged mice.