Sex-lethal is the Drosophila melanogaster sex determination master switch. It is also required in female germ cells to control mitosis and meiotic recombination. As early germ cells mature, distinct changes in both Sex-lethal protein levels and localization occur. By manipulating the levels of Hedgehog and making germline clones of components in the hedgehog signaling pathway, we demonstrate that Hedgehog affects the nuclear translocation of Sex-lethal and the levels of the protein in early germ cells. This effect is mediated primarily through degradation. Consistent with the Hedgehog pathway regulating Sex-lethal, we find Sex-lethal in a complex with Fused and Costal-2, both downstream components of the pathway. This is the first demonstration that downstream components of the Hedgehog signaling pathway regulate a target other than Cubitus interruptus.