Gli proteins are transcriptional effectors of the Hedgehog signaling pathway. They play key roles in the development of many organs and tissues, and are deregulated in birth defects and cancer. We review the molecular mechanisms of Gli protein regulation in mammals, with special emphasis on posttranslational modifications and intracellular transport. We also discuss how Gli proteins interact with co-activators and co-repressors to fine-tune the expression of Hedgehog target genes. Finally, we provide an overview of the regulation of developmental processes and tissue regeneration by Gli proteins and discuss how these proteins are involved in cancer progression, both through canonical regulation via the Hedgehog pathway and through cross-talk with other signaling pathways.