Renal cystic diseases are a leading cause of renal failure. Mutations associated with renal cystic diseases reside in genes encoding proteins that localize to primary cilia. These cystoproteins can disrupt ciliary structure or cilia-mediated signaling, although molecular mechanisms connecting cilia function to renal cystogenesis remain unclear. The ciliary gene, Thm1(Ttc21b), negatively regulates Hedgehog signaling and is most commonly mutated in ciliopathies. We report that loss of murine Thm1 causes cystic kidney disease, with persistent proliferation of renal cells, elevated cAMP levels, and enhanced expression of Hedgehog signaling genes. Notably, the cAMP-mediated cystogenic potential of Thm1-null kidney explants was reduced by genetically deleting Gli2, a major transcriptional activator of the Hedgehog pathway, or by culturing with small molecule Hedgehog inhibitors. These Hedgehog inhibitors acted independently of protein kinase A and Wnt inhibitors. Furthermore, simultaneous deletion of Gli2 attenuated the renal cystic disease associated with deletion of Thm1. Finally, transcripts of Hedgehog target genes increased in cystic kidneys of two other orthologous mouse mutants, jck and Pkd1, and Hedgehog inhibitors reduced cystogenesis in jck and Pkd1 cultured kidneys. Thus, enhanced Hedgehog activity may have a general role in renal cystogenesis and thereby present a novel therapeutic target.