The Hedgehog (Hh) responsive transcription factor Gli3 is required for efficient thymocyte development in the fetus. In this study we show that Gli3, not detected in adult thymocytes, is expressed in the murine fetal and adult thymus stroma. PCR array analysis revealed Cxcl9, Rbp1, and Nos2 as novel target genes of Gli3. We show that Gli3 positively regulates the expression of these genes, most likely by suppressing an intermediate repressor. Deletion of autoreactive thymocytes depends on their interactions with the thymus stroma. Repression of the proapoptotic gene Nos2 in Gli3 mutants coincides with reduced apoptosis of double positive thymocytes undergoing negative selection in vitro and in vivo, and the production of autoreactive thymocytes. Taken together these data indicate that Gli3 controls thymocyte apoptosis and negative selection possibly via the regulation of Nos2. Defective Gli3 expression in the thymus stroma also resulted in decreased CD5 expression on mature thymocytes and inappropriate production of MHC class I-selected CD4(+) cells, both consistent with reduced TCR signal strength. Overall our data indicate that Gli3 expressed in the thymus stroma regulates negative selection and TCR signal strength via Hh-dependent and -independent mechanisms, with implications for autoimmunity.