The widespread involvement of the Hedgehog (Hh) signaling pathway in human malignancies has driven efforts to develop Hh pathway inhibitors as anti-cancer agents. The majority of these agents antagonize Smoothened (Smo), a plasma membrane-associated signal transducer molecule. However, several such Smo antagonists have failed in clinical trials to benefit patients with cancers that arise from aberrant Hh signaling (which often bypasses Smo). In this study, we report that a naturally occurring oxysterol, 20α, 22(R)-dihydroxycholesterol (Oxy16), a known metabolite in the biosynthesis of steroid hormones, strongly inhibits Hh signaling induced in C3H10T1/2 embryonic fibroblasts and NIH3T3-E1 fibroblasts through a mechanism that is independent of liver X receptor (LXR) activation. We demonstrate that Oxy16 inhibits Hh signaling in Suppressor of Fused (Sufu) null mouse embryonic fibroblast (MEF) cells, indicating that its inhibitory effect on Hh signaling is epistatic to Sufu. We further demonstrate that Oxy16 inhibits Gli1 transcriptional activity in NIH3T3-E1 cells overexpressing Gli1 and a Gli-dependent reporter construct. Altogether, data presented here suggest that Oxy16 may be a suitable starting point for the development of new drugs that inhibit Hh signaling downstream of Smo. By targeting aberrant Hh signaling, such novel Hh pathway inhibitors could significantly broaden the range of clinical applications compared to existing Smo antagonists. Furthermore, the present study adds a new facet to the spectrum of Hh pathway modulation that naturally occurring oxysterol derivatives are capable of, ranging from allosteric activation of the pathway via Smo binding to inhibition of the pathway downstream of Smo. J. Cell. Biochem. 118: 499-509, 2017. © 2016 Wiley Periodicals, Inc.