We show that Indian Hedgehog (Ihh) regulates T-cell development and homeostasis in both fetal and adult thymus, controlling thymocyte number. Fetal Ihh^−/− thymi had reduced differentiation to double-positive (DP) cell and reduced cell numbers compared with wild-type littermates. Surprisingly, fetal Ihh^+/− thymi had increased thymocyte numbers and proportion of DP cells relative to wild type, indicating that Ihh also negatively regulates thymocyte development. In vitro treatment of thymus explants with exogenous recombinant Hedgehog protein promoted thymocyte development in Ihh^−/− thymi but inhibited thymocyte development in Ihh^+/−, confirming both positive and negative regulatory functions of Ihh. Analysis of Rag^−/−Ihh^+/− thymi showed that Ihh promotes T-cell development before pre–T-cell receptor (pre-TCR) signaling, but negatively regulates T-cell development only after pre-TCR signaling has taken place. We show that Ihh is most highly expressed by the DP population and that Ihh produced by DP cells feeds back to negatively regulate the differentiation and proliferation of their double-negative progenitors. Thus, differentiation from double-negative to DP cell, and hence the size of the DP population, is dependent on the concentration of Ihh in the thymus. Analysis of Ihh conditional knockout and heterozygote adult mice showed that Ihh also influences thymocyte number in the adult.