Signaling by Hedgehog (Hh) proteins shapes most tissues and organs in both vertebrates and invertebrates, and its misregulation has been implicated in many human diseases. Although components of the signaling pathway have been identified, key aspects of the signaling mechanism and downstream targets remain to be elucidated. We performed an enhancer/suppressor screen in Drosophila to identify novel components of the pathway and identified 26 autosomal regions that modify a phenotypic readout of Hh signaling. Three of the regions include genes that contribute constituents to the pathway-patched, engrailed, and hh. One of the other regions includes the gene microtubule star (mts) that encodes a subunit of protein phosphatase 2A. We show that mts is necessary for full activation of Hh signaling. A second region includes the gene second mitotic wave missing (swm). swm is recessive lethal and is predicted to encode an evolutionarily conserved protein with RNA binding and Zn(+) finger domains. Characterization of newly isolated alleles indicates that swm is a negative regulator of Hh signaling and is essential for cell polarity.