Hedgehog (Hh) signaling is crucial for the development of many tissues, and altered Hh signal transduction can result in cancer. The Drosophila Costal1 (Cos1) and costal2 (cos2) genes have been implicated in Hh signaling. cos2 encodes a kinesin-related molecule, one component of a cytoplasmic complex of Hh signal transducers. Mutations in Cos1 enhance loss-of-function cos2 mutations, but the molecular nature of Cos1 has been unknown. We found that previously identified alleles of Cos1 actually map to two separate loci. Four alleles of Cos1 appear to be dominant-negative mutations of a catalytic subunit of protein kinase A (pka-C1) and the fifth allele, Cos1(A1), is a gain-of-function allele of the PKA regulatory subunit pka-RII. PKA-RII protein levels are higher in Cos1(A1) mutants than in wild type. Overexpression of wild-type pka-RII phenocopies Cos1 mutants. PKA activity is aberrant in Cos1(A1) mutants. PKA-RII is uniformly overproduced in the wing imaginal disc in Cos1(A1) mutants, but only certain cells respond by activating the transcription factor Ci and Hh target gene transcription. This work shows that overexpression of a wild-type regulatory subunit of PKA is sufficient to activate Hh target gene transcription.