TCR signal strength is involved in many cell fate decisions in the T-cell lineage. Here, we show that transcriptional events induced by Hedgehog (Hh) signaling reduced TCR signal strength in mice. Activation of Hh signaling in thymocytes in vivo by expression of a transgenic transcriptional-activator form of Gli2 (Gli2\#916;N₂) changed the outcome of TCR ligation at many stages of thymocyte development, allowing self-reactive cells to escape clonal deletion; reducing transgenic TCR-mediated positive selection; reducing the ratio of CD4/CD8 single-positive (SP) cells; and reducing cell surface CD5 expression. In contrast, in the Shh^{\#8722;/\#8722;} thymus the ratio of CD4/CD8 cells and both positive and negative selection of a transgenic TCR were increased, demonstrating that Shh does indeed influence TCR repertoire selection and the transition from double-positive (DP) to SP cell in a physiological situation. In peripheral T cells, Gli2\#916;N₂ expression attenuated T-cell activation and proliferation, by a mechanism upstream of ERK phosphorylation.