Activation of the Hedgehog (Hh) pathway is known to drive development of basal cell carcinoma and medulloblastomas and to associate with many other types of cancer, but the exact molecular mechanisms underlying the carcinogenesis process remain elusive. We discovered that skin tumors derived from epidermal expression of oncogenic Smo, SmoM2, have elevated levels of IL-11, IL-11Rα, and STAT3 phosphorylation at Tyr(705). The relevance of our data to human conditions was reflected by the fact that all human basal cell carcinomas examined have detectable STAT3 phosphorylation, mostly in keratinocytes. The functional relevance of STAT3 in Smo-mediated carcinogenesis was revealed by epidermal specific knockout of STAT3. We showed that removal of STAT3 from mouse epidermis dramatically reduced SmoM2-mediated cell proliferation, leading to a significant decrease in epidermal thickness and tumor development. We also observed a significant reduction of epidermal stem/progenitor cell population and cyclin D1 expression in mice with epidermis-specific knockout of STAT3. Our evidence indicates that STAT3 signaling activation may be mediated by the IL-11/IL-11Rα signaling axis. We showed that tumor development was reduced after induced expression of SmoM2 in IL-11Rα null mice. Similarly, neutralizing antibodies for IL-11 reduced the tumor size. In two Hh-responsive cell lines, ES14 and C3H10T1/2, we found that addition of Smo agonist purmorphamine is sufficient to induce STAT3 phosphorylation at Tyr(705), but this effect was abolished after IL-11Rα down-regulation by shRNAs. Taken together, our results support an important role of the IL-11Rα/STAT3 signaling axis for Hh signaling-mediated signaling and carcinogenesis.