Primary cilia are required for Smoothened to transduce vertebrate Hedgehog signals, but how Smoothened accumulates in cilia and is activated is incompletely understood. Here, we identify cilia-associated oxysterols that promote Smoothened accumulation in cilia and activate the Hedgehog pathway. Our data reveal that cilia-associated oxysterols bind to two distinct Smoothened domains to modulate Smoothened accumulation in cilia and tune the intensity of Hedgehog pathway activation. We find that the oxysterol synthase HSD11β2 participates in the production of Smoothened-activating oxysterols and promotes Hedgehog pathway activity. Inhibiting oxysterol biosynthesis impedes oncogenic Hedgehog pathway activation and attenuates the growth of Hedgehog pathway-associated medulloblastoma, suggesting that targeted inhibition of Smoothened-activating oxysterol production may be therapeutically useful for patients with Hedgehog-associated cancers.