Hedgehog (Hh) signaling plays vital roles in animal development and tissue homeostasis, and its misregulation causes congenital diseases and several types of cancer. Suppressor of Fused (Su(fu)) is a conserved inhibitory component of the Hh signaling pathway, but how it is regulated remains poorly understood. Here we demonstrate that in Drosophila Hh signaling promotes downregulation of Su(fu) through its target protein HIB (Hh-induced BTB protein). Interestingly, although HIB-mediated downregulation of Su(fu) depends on the E3 ubiquitin ligase Cul3, HIB does not directly regulate Su(fu) protein stability. Through an RNAi-based candidate gene screen, we identify the spliceosome factor Crooked neck (Crn) as a regulator of Su(fu) level. Epistasis analysis indicates that HIB downregulates Su(fu) through Crn. Furthermore, we provide evidence that HIB retains Crn in the nucleus, leading to reduced Su(fu) protein level. Finally, we show that SPOP, the mammalian homologue of HIB, can substitute HIB to downregulate Su(fu) level in Drosophila. Our study suggests that Hh regulates both Ci and Su(fu) levels through its target HIB, thus uncovering a novel feedback mechanism that regulates Hh signal transduction. The dual function of HIB may provide a buffering mechanism to fine-tune Hh pathway activity.