The Hedgehog (Hh) pathway plays conserved roles in regulating a diverse spectrum of developmental processes. In some developmental contexts, a gradient of Hh protein specifies multiple cell types in a dose-dependent fashion, thereby acting as a morphogen. Hh signaling ultimately acts on the transcriptional level through GLI proteins. In the presence of Hh signaling full length GLI proteins act as transcriptional activators of target genes. Conversely, in the absence of Hh, GLI proteins act as transcriptional repressors. This review will highlight mechanisms contributing to how graded Hh signaling might translate to differential GLI activity and be interpreted into distinct transcriptional responses.