Hedgehog (Hh) pathway activation promotes many processes that occur during fibrogenic liver repair. Whether the Hh pathway modulates the outcomes of virally mediated liver injury has never been examined. Gene-profiling studies of human hepatocellular carcinomas (HCCs) demonstrate Hh pathway activation in HCCs related to chronic infection with hepatitis B virus (HBV) or hepatitis C virus (HCV). Because most HCCs develop in cirrhotic livers, we hypothesized that Hh pathway activation occurs during fibrogenic repair of liver damage due to chronic viral hepatitis, and that Hh-responsive cells mediate disease progression and hepatocarciongenesis in chronic viral hepatitis. Immunohistochemistry and qRT-PCR analysis were used to analyze Hh pathway activation and identify Hh-responsive cell types in liver biopsies from 45 patients with chronic HBV or HCV. Hh signaling was then manipulated in cultured liver cells to directly assess the impact of Hh activity in relevant cell types. We found increased hepatic expression of Hh ligands in all patients with chronic viral hepatitis, and demonstrated that infection with HCV stimulated cultured hepatocytes to produce Hh ligands. The major cell populations that expanded during cirrhosis and HCC (ie, liver myofibroblasts, activated endothelial cells, and progenitors expressing markers of tumor stem/initiating cells) were Hh responsive, and higher levels of Hh pathway activity associated with cirrhosis and HCC. Inhibiting pathway activity in Hh-responsive target cells reduced fibrogenesis, angiogenesis, and growth. In conclusion, HBV/HCV infection increases hepatocyte production of Hh ligands and expands the types of Hh-responsive cells that promote liver fibrosis and cancer.