The Hedgehog (Hh) pathway is an evolutionarily conserved signaling pathway that plays fundamental roles during embryogenesis and in adult stem cells. Dysregulation of Hh signaling has severe consequences in humans, ranging from birth defects to the development of basal cell carcinoma, medulloblastoma, and many other tumors. Many human disease-associated mutations have been identified in Hh pathway components. Regulation of the Hh pathway has therefore attracted considerable attention from both basic and clinical- scientists. The Hh pathway can be regulated at multiple levels. The Gli family of transcription factors act at the end of the Hh signaling cascade to control the expression of Hh target genes. Therefore, it is possible that abnormalities in the Hh pathway can be corrected by modulating the function of Gli proteins in human patients. However, it remains largely unclear how the transcriptional activation function of Gli is regulated. Genetic studies in zebrafish have identified Daz interacting protein 1 (Dzip1) as a regulator of Gli. Based on phenotypic characterization of zebrafish mutants deficient in Dzip1, it was proposed that Dzip1 regulates the function of Gli by antagonizing Suppressor of Fused (SuFu), an inhibitor of Gli. However, this hypothesis has not been tested vigorously. Recent studies in Drosophila and our work in vertebrates have demonstrated that B565, a regulatory subunit of protein phosphatase 2A (PP2A), regulates the transactivation function of Gli through an as yet unclear mechanism. In an effort to understand how B565 regulates the function of Gli, we found that B565, Dzip1, and SuFu interact functionally and biochemically and are involved in a novel Gli regulatory mechanism. We show that B565 and Dzip1 act upstream of SuFu and antagonize the function of SuFu. Strikingly, Hh signaling triggers dephosphorylation of Dzip1. Depletion of B565, which physically interacts with Dzip1, enhances phosphorylation of Dzip1, suggesting that the B565-containing PP2A dephosphorylates Dzip1 directly. These preliminary results have led to the hypothesis that Hh signaling releases the inhibitory effect of SuFu on Gli by regulating B565-dependent Dzip1 dephosphorylation. The work will proceed with the following Specific Aims: Aim1: To determine whether B565 is required for Hh signaling-induced dephosphorylation of Dzip1. Aim2: To determine whether B565 regulates the function of Dzip1 in the Hh pathway. Aim3: To determine whether the dephosphorylated form of Dzip1 antagonizes SuFu. It is widely believed that mechanistic studies of the Hh pathway will identify important therapeutic targets and ultimately lead to more effective therapies for a wide range of cancers in human. Completion of the above studies will likely uncover an important mechanism of Gli regulation and lead to new therapeutic approaches.