Chronic inflammation in the stomach can lead to gastric cancer. We previously reported that gastrin-deficient (Gast-/-) mice develop bacterial overgrowth, inflammatory infiltrate, increased Il-1β expression, antral hyperplasia and eventually antral tumors. Since Hedgehog (Hh) signaling is active in gastric cancers but its role in precursor lesions is poorly understood, we examined the role of inflammation and Hh signaling in antral hyperplasia. LacZ reporter mice for Sonic hedgehog (Shh), Gli1, and Gli2 expression bred onto the Gast-/- background revealed reduced Shh and Gli1 expression in the antra compared to wild type controls (WT). Gli2 expression in the Gast-/- corpus was unchanged. However in the hyperplastic Gast-/- antra, Gli2 expression increased in both the mesenchyme and epithelium, whereas expression in WT mice remained exclusively mesenchymal. These observations suggested that Gli2 is differentially regulated in the hyperplastic Gast-/- antrum versus the corpus and by a Shh ligand-independent mechanism. Moreover, the proinflammatory cytokines Il-1β and Il-11, which promote gastric epithelial proliferation, were increased in the Gast-/- stomach along with Infγ. To test if inflammation could account for elevated epithelial Gli2 expression in the Gast-/- antra, the human gastric cell line AGS was treated with IL-1β and was found to increase GLI2 but decrease GLI1 levels. IL-1β also repressed human GAST gene expression. Indeed, GLI2 but not GLI1 or GLI3 expression repressed gastrin luciferase reporter activity by ~50 percent. Moreover, chromatin immunoprecipitation of GLI2 in AGS cells confirmed that GLI2 directly binds to the GAST promoter. Using a mouse model of constitutively active epithelial GLI2 expression, we found that activated GLI2 repressed Gast expression but induced Il-1β gene expression and proliferation in the gastric antrum, along with a reduction of the number of G-cells. In summary, epithelial Gli2 expression was sufficient to stimulate Il-1β expression, repress Gast gene expression and increase proliferation, leading to antral hyperplasia.