Thyroid hormone (TH) is an important regulator of growth, development, and metabolism. Most of the active TH T3 is generated by peripheral TH metabolism mediated by the iodothyronine deiodinases. Type 3 deiodinase (D3) inactivates T3 via specific deiodination reactions. It is an oncofetal protein frequently expressed in neoplastic tissues and is a direct target of the sonic hedgehog (Shh) pathway in basal cell carcinomas (BCCs). However, the molecular mechanisms triggered by T3 in BCC are still mostly unrevealed. Here, we demonstrate that D3 action is critical in the proliferation and survival of BCC cells. D3 depletion or T3 treatment induce apoptosis of BCC cells and attenuate Shh signaling. This is achieved through a direct impairment of Gli2 protein stability by T3. T3 induces protein kinase A, which in turn destabilizes Gli2 protein via its C-terminal degron. Finally, in a mouse model of BCC, T3-topical treatment significantly reduces tumor growth. These results demonstrate the existence of a previously unrecognized cross talk between TH and Gli2 oncogene, providing functional and mechanistic evidence of the involvement of TH metabolism in Shh-induced cancer. TH-mediated Gli2 inactivation would be beneficial for therapeutically purposes, because the inhibition of Shh-Gli2 signaling is an attractive target for several anticancer drugs, currently in clinical trials.