Genetic studies of patients with the nevoid basal cell carcinoma syndrome have led to the recognition of the importance of the hedgehog signaling pathway in the development of basal cell carcinomas of the skin. Although hedgehog signaling is known to be important in hair follicle development, the function of this pathway in adult skin and the mechanism by which activation of this pathway leads to basal cell carcinoma development remain to be established. The Gli1 family of transcription factors mediates hedgehog signaling in mammalian cells and we have shown in previous studies that Gli1 mRNA is differentially expressed in basal cell carcinomas. Using antibodies to epitopes on the N and C terminal regions of Gli1 we show now that Gli1 protein is present in basal cell carcinomas and that the protein is mainly localized to the cytoplasmic compartment. Focal nuclear staining was seen in a small number of basal cell carcinomas with the C terminal antibody which suggest that nuclear localization is not dependent on loss of the C terminus of Gli1 due to proteolysis. Strong Gli1 immunostaining was seen in the outer root sheath keratinocytes of some hair follicles, a subpopulation of mesenchymal cells in the vicinity of the bulge region of adult hair follicles and the dermal sheath cells of developing hair follicles. Quantitation of Gli1 mRNA in basal cell carcinomas using northern blot analysis indicates that Gli1 is highly expressed in basal cell carcinomas. This suggests that the lower intensity of Gli1 immunostaining in basal cell carcinoma islands relative to outer root sheath keratinocytes is not simply a reflection of differences in gene expression. The continued expression of Gli1 in adult hair follicles and in the mesenchyme of adult human skin suggest that Hh signaling may play a part in hair cycling and in epidermal mesenchymal interactions important in normal skin maintenance.