The multifunctional NS1 protein of influenza A viruses suppresses host cellular defense mechanisms and subverts other cellular functions. We report here on a new role for NS1 in modifying cell-cell signaling via the Hedgehog (Hh) pathway. Genetic epistasis experiments and FRET-FLIM assays in Drosophila suggest that NS1 interacts directly with the transcriptional mediator, Ci/Gli1. We further confirmed that Hh target genes are activated cell-autonomously in transfected human lung epithelial cells expressing NS1, and in infected mouse lungs. We identified a point mutation in NS1, A122V, that modulates this activity in a context-dependent fashion. When the A122V mutation was incorporated into a mouse-adapted influenza A virus, it cell-autonomously enhanced expression of some Hh targets in the mouse lung, including IL6, and hastened lethality. These results indicate that, in addition to its multiple intracellular functions, NS1 also modifies a highly conserved signaling pathway, at least in part via cell autonomous activities. We discuss how this new Hh modulating function of NS1 may influence host lethality, possibly through controlling cytokine production, and how these new insights provide potential strategies for combating infection.