Basal-cell carcinomas (BCCs) are the commonest human cancer. Insight into their genesis came from identification of mutations in the PATCHED gene (PTCH) in patients with the basal-cell nevus syndrome, a hereditary disease characterized by multiple BCCs and by developmental abnormalities. The binding of Sonic hedgehog (SHH) to its receptor, PTCH, is thought to prevent normal inhibition by PTCH of Smoothened (SMO), a seven-span transmembrane protein. According to this model, the inhibition of SMO signalling is relieved following mutational inactivation of PTCH in basal-cell nevus syndrome. We report here the identification of activating somatic missense mutations in the SMO gene itself in sporadic BCCs from three patients. Mutant SMO, unlike wild type, can cooperate with adenovirus E1A to transform rat embryonic fibroblast cells in culture. Furthermore, skin abnormalities similar to BCCs developed in transgenic murine skin overexpressing mutant SMO. These findings support the role of SMO as a signalling component of the SHH-receptor complex and provide direct evidence that mutated SMO can function as an oncogene in BCCs.