The significance of Hedgehog (HH) signaling in the development of basal cell carcinoma (BCC) has been established. Although several target genes of HH signaling have been described previously, their precise role in tumorigenesis and cell proliferation is not yet known. To identify genes responsible for tumor formation in BCC, we screened a DNA microarray database of human BCC cases; the orphan G-protein-coupled receptor GPR49 was found to be up-regulated in all cases. GPR49 is a novel gene reported to be a marker of follicular and other tissue stem cells. Using real-time quantitative RT-PCR analysis, significant expression of GPR49 mRNA was observed in 19 of 20 BCC cases (95%) compared with controls. Up-regulation of GPR49 was confirmed by in situ hybridization. Moreover, knockdown of mouse Gpr49 showed suppression of cell proliferation in a mouse BCC cell line, and overexpression of GPR49 in human immortalized keratinocyte HaCaT cells induced proliferation. Furthermore, HaCaT cells overexpressing GPR49 showed tumor formation when transplanted into immunodeficient mice. In addition, inhibition of the HH signaling pathway in a mouse BCC cell line down-regulated endogenous Gpr49, whereas activation of HH signaling in mouse NIH3T3 cells up-regulated endogenous GPR49. These results suggest that GPR49 is expressed downstream of HH signaling and promotes cell proliferation and tumor formation in cases of BCC.