The Hedgehog pathway plays critical roles in metazoan development and in cancer. In vertebrates, Hedgehog signaling initiated in primary cilia activates the seven‐spanner membrane protein Smoothened, and leads to activation of Gli proteins, which control the transcriptional output of the pathway. I will discuss our recent findings on the mechanism by which Smoothened is activated by oxysterols, a mysterious class cholesterol metabolites with potent biological effects. Our results elucidate important aspects of Hedgehog signal transduction in vertebrates, and suggest novel strategies for blocking oncogenic Hedgehog signaling.