Activation of the Hedgehog (Hh) signaling pathway has been implicated in a variety of malignancies including neuroblastoma. Expression of Gli1, a downstream effector of Hh, correlates with a favorable prognosis in patients with neuroblastoma. Moreover, Gli1 overexpression reduces mitotic index and induces transcription of genes involved in the differentiation of neuroblastoma cells; however, much remains unknown regarding the regulation of Gli1 transcriptional activity. Here, we report a novel negative regulation of Gli1 transcriptional activity by PI3K/AKT2 signal transduction pathway. Constitutively active PI3K subunit, p110α, inhibited Gli1 transcriptional activity in neuroblastoma cells, whereas, overexpression of an inactive form of PI3K subunit, p85, enhanced its activity. Specifically, the AKT2 isoform inhibited Gli1 luciferase activity. Silencing AKT2 using siRNA increased Gli1 transcriptional activity and conversely, overexpression of constitutively active AKT2 (myr-AKT2) decreased Gli1 transcriptional activity. Furthermore, Gli1 overexpression-mediated decrease in anchorage-independent growth was rescued by AKT2 overexpression. We also demonstrated that AKT2 overexpression regulates the nuclear-cytoplasmic distribution of exogenous Gli1 protein in neuroblastoma cells by relieving a GSK3β-mediated destabilization of SUFU, a negative regulator of Gli1 nuclear translocation. Inhibition of nuclear Gli1 accumulation may explain for the suppression of the tumor-suppressive function of Gli1. Collectively, our findings suggest an important role of Gli1 as a tumor suppressor in neuroblastoma, and offer a mechanism by which AKT2 regulates the subcellular localization, and in turn, inhibits the tumor-suppressive function of Gli1 in neuroblastoma.