Hedgehog proteins signal for differentiation, survival and proliferation of the earliest thymocyte progenitors, but their functions at later stages of thymocyte development and in peripheral T-cell function are controversial. Here we show that repression of Hedgehog (Hh) pathway activation in T-lineage cells, by expression of a transgenic repressor form of Gli2 (Gli2δC2), increased T-cell differentiation and activation in response to TCR signalling. Expression of the Gli2δC2 transgene increased differentiation from CD4+CD8+ to single positive thymocyte, and increased peripheral T cell populations. Gli2δC2 T-cells were hyper-responsive to activation by ligation of CD3 and CD28: they expressed cell surface activation markers CD69 and CD25 more quickly, and proliferated more than wild-type T-cells. These data show that Hedgehog pathway activation in thymocytes and T-cells negatively regulates TCR-dependent differentiation and proliferation. Thus, as negative regulators of TCR-dependent events, Hh proteins provide an environmental influence on T-cell fate.