The hedgehog (Hh) signaling pathway plays a very important role in metazoan development by controlling pattern formation. Malfunction of the Hh signaling pathway leads to numerous serious human diseases, including congenital disorders and cancers. The seven-transmembrane domain protein Smoothened (Smo) is a key transducer of the Hh signaling pathway, and mediates the graded Hh signal across the cell plasma membrane, thereby inducing the proper expression of downstream genes. Smo accumulation on the cell plasma membrane is regulated by its C-tail phosphorylation and the graded Hh signal. The inhibitory mechanism for Smo membrane accumulation in the absence of Hh, however, is still largely unknown. Here, we report that Vps36 of the ESCRT-II complex regulates Smo trafficking between the cytosol and plasma membrane by specifically recognizing the ubiquitin signal on Smo in the absence of Hh. Furthermore, in the absence of Hh, Smo is ubiquitylated on its cytoplasmic part, including its internal loops and C-tail. Taken together, our data suggest that the ESCRT-II complex, especially Vps36, has a special role in controlling Hh signaling by targeting the membrane protein Smo for its trafficking in the absence of Hh, thereby regulating Hh signaling activity.