BACKGROUND & AIMS: Improving outcomes in alcoholic liver disease (ALD) necessitates better understanding of how habitual ethanol (EtOH) consumption alters normal regenerative mechanisms within the liver. Hedgehog (Hh) pathway activation promotes expansion of progenitor populations in other tissues. We evaluated the hypothesis that chronic EtOH exposure activates Hh signaling in liver. METHODS: Hh signaling, liver progenitors, transforming growth factor (TGF)-beta induction, and liver damage were compared in mice fed chow, high-fat diets (HF), or HF + EtOH for 4 weeks. Susceptibility to TGF-beta-mediated apoptosis was compared in Hh-responsive liver cells (eg, immature cholangiocytes and oval cells) and mature hepatocytes (which are unresponsive to Hh). Hepatic accumulation of Hh-responsive cells were compared in controls and ALD patients and correlated with a discriminant function (DF) that predicts subacute mortality. RESULTS: Hh signaling and numbers of Hh-responsive cells were increased in HF mice and greatest in HF+EtOH mice. In both, progenitor and stromal cell populations harbored Hh-responsive cells. More ductular-type progenitors and fibrosis markers were noted in HF+EtOH mice than in HF mice. The former also expressed more TGF-beta-1. TGF-beta-1 treatment selectively promoted the viability of Hh-responsive immature liver cells and caused mature hepatocytes that survived to produce Hh ligands. Hh-responsive cells were increased in ALD patients. Lobular accumulation of Hh-responsive immature ductular cells was greater in those with a DF >32 than those with a DF <32. CONCLUSIONS: Hh signaling is increased in ALD and may influence ALD outcomes by promoting hepatic accumulation of immature ductular cells.