Sonic hedgehog (SHH) signaling is an important promotor of desmoplasia, a critical feature in pancreatic cancer stromal reactions involving the activation of pancreatic stellate cells (PSCs). Gremlin 1 is widely overexpressed in cancer-associated stromal cells, including activated PSCs. In embryonic development, SHH is a potent regulator of Gremlin 1 through an interaction network. This subtle mechanism in the cancer microenvironment remains to be fully elucidated. The present study investigated the association between Gremlin 1 and SHH, and the effect of Gremlin 1 in pancreatic cancer. The expression of Gremlin 1 in different specimens was measured using immunohistochemistry. The correlations among clinicopathological features and levels of Gremlin 1 were evaluated. Primary human PSCs and pancreatic cancer cell lines were exposed to SHH, cyclopamine, GLI family zinc finger-1 (Gli-1) small interfering RNA (siRNA), and Gremlin 1 siRNA to examine their associations and effects using an MTT assay, reverse transcription-quantitative polymerase chain reaction analysis, western blot analysis, and migration or invasion assays. The results revealed the overexpression of Gremlin 1 in pancreatic cancer tissues, mainly in the stroma. The levels of Gremlin 1 were significantly correlated with survival rate and pT status. In addition, following activation of the PSCs, the expression levels of Gremlin 1 increased substantially. SHH acts as a potent promoter of the expression of Gremlin 1, and cyclopamine and Gli-1 siRNA modulated this effect. In a screen of pancreatic cancer cell lines, AsPC-1 and BxPC-3 cells expressed high levels of Gremlin 1, but only AsPC-1 cells exhibited a high expression level of SHH. The results of the indirect co-culture experiment suggested that paracrine SHH from the AsPC-1 cells induced the expression of Gremlin 1 in the PSCs. Furthermore, Gremlin 1 siRNA negatively regulated the proliferation and migration of PSCs, and the proliferation, invasion and epithelial-mesenchymal transition of AsPC-1 and BxPC-3 cells. Based on the data from the present study, it was concluded that an abnormal expression level of Gremlin 1 in pancreatic cancer was induced by SHH signaling, and that the overexpression of Gremlin 1 enabled pancreatic cancer progression.