The Ci/Gli family of transcription factors mediates Hedgehog (Hh) signaling in many key developmental processes. Here we identify a Hh-induced MATH and BTB domain containing protein (HIB) as a negative regulator of the Hh pathway. Overexpressing HIB down regulates Ci and blocks Hh signaling, whereas inactivating HIB results in Ci accumulation and enhanced pathway activity. HIB binds the N- and C-terminal regions of Ci, both of which mediate Ci degradation. HIB forms a complex with Cul3, a scaffold for modular ubiquitin ligases, and promotes Ci ubiquitination and degradation through Cul3. Furthermore, HIB-mediated Ci degradation is stimulated by Hh and inhibited by Suppressor of Fused (Sufu). The mammalian homolog of HIB, SPOP, can functionally substitute for HIB, and Gli proteins are degraded by HIB/SPOP in Drosophila. We provide evidence that HIB prevents aberrant Hh signaling posterior to the morphogenic furrow, which is essential for normal eye development.