Sporadic basal cell carcinoma (BCC) is the most common type of malignant cancer in fair-skinned adults. Familial BCCs and a fraction of sporadic BCCs have lost the function of Patched (Ptc), a Sonic hedgehog (Shh) receptor that acts negatively on this signalling pathway. Overexpression of Shh can induce BCCs in mice. Here we show that ectopic expression of the zinc-finger transcription factor Gli1 in the embryonic frog epidermis results in the development of tumours that express endogenous Gli1. We also show that Shh and the Gli genes are normally expressed in hair follicles, and that human sporadic BCCs consistently express Gli1 but not Shh or Gli3. Because Gli1, but not Gli3, acts as a target and mediator of Shh signalling, our results suggest that expression of Gli1 in basal cells induces BCC formation. Moreover, loss of Ptc or overexpression of Shh cannot be the sole causes of Gli1 induction and sporadic BCC formation, as they do not occur consistently. Thus any mutations leading to the expression of Gli1 in basal cells are predicted to induce BCC formation.