Hedgehog (Hh) signaling is essential for osteoblast differentiation in the endochondral skeleton during embryogenesis. However, the molecular mechanism underlying the osteoblastogenic role of Hh is not completely understood. Here, we report that Hh markedly induces the expression of insulin-like growth factor 2 (Igf2) that activates the mTORC2-Akt signaling cascade during osteoblast differentiation. Igf2-Akt signaling, in turn, stabilizes full-length Gli2 through Serine 230, thus enhancing the output of transcriptional activation by Hh. Importantly, genetic deletion of the Igf signaling receptor Igf1r specifically in Hh-responding cells diminishes bone formation in the mouse embryo. Thus, Hh engages Igf signaling in a positive feedback mechanism to activate the osteogenic program.