Cilia mediate Hedgehog (Hh) signaling in vertebrates and Hh deregulation results in several clinical manifestations, such as obesity, cognitive disabilities, developmental malformations, and various cancers. Drosophila cells are nonciliated during development, which has led to the assumption that cilia-mediated Hh signaling is restricted to vertebrates. Here, we identify and characterize a cilia-mediated Hh pathway in Drosophila olfactory sensory neurons. We demonstrate that several fundamental key aspects of the vertebrate cilia pathway, such as ciliary localization of Smoothened and the requirement of the intraflagellar transport system, are present in Drosophila. We show that Cos2 and Fused are required for the ciliary transport of Smoothened and that cilia mediate the expression of the Hh pathway target genes. Taken together, our data demonstrate that Hh signaling in Drosophila can be mediated by two pathways and that the ciliary Hh pathway is conserved from Drosophila to vertebrates.