T helper 17 (Th17) cells play a key role in barrier protection against fungal and bacterial pathogens but are also pathological drivers of many inflammatory diseases. Although the transcription factor networks governing Th17 differentiation are well defined, the signaling pathways that regulate the development and function of this important CD4+ T cell subset are still poorly understood. Hedgehog (Hh) signaling plays important roles in regulating cell fate decisions during embryogenesis and adult tissue patterning. Using novel CD4-specific Hh knockout mice, we find that intracellular Hh signaling, independently of exogenous Hh ligands, selectively drives Th17 lineage differentiation but not the development of Th1, Th2, or iTreg CD4+ Th cells. We show that the endogenous Indian Hh (Ihh) ligand signals via the signal transducer Smoothened to activate both canonical and non-canonical Hh pathways, through the Gli3 transcription factor and AMPK phosphorylation, respectively. Using two models of intestinal inflammation, we demonstrate that inhibition of the Hh pathway with either the clinically approved small molecule inhibitor vismodegib or genetic ablation of Ihh in CD4+ T cells greatly diminishes disease severity. Taken together, we have uncovered Hh as a novel signaling pathway controlling Th17 differentiation and Gli3 as a crucial transcription factor in this process. Our work paves the way for a potential use of Hh inhibitors in the treatment of inflammatory bowel disease and other autoimmune diseases.