Mammalian Hedgehog (Hh) signaling relies on three Gli transcription factors to mediate Hh responses. This process is controlled in part by a major negative regulator, Sufu, through its effects on Gli protein level, distribution and activity. In this report, we showed that Sufu regulates Gli1 protein levels by antagonizing Numb/Itch. Otherwise, Numb/Itch would induce Gli1 protein degradation. This is in contrast to inhibition of Spop-mediated degradation of Gli2/3 by Sufu. Thus, controlling protein levels of all three Gli genes by Sufu is a conserved mechanism to modulate Hh responses albeit via distinct pathways. These findings in cell-based assays were further validated in vivo. In analyzing how Sufu controls Gli proteins in different tissues, we discovered that loss of Sufu in the lung exerts different effects on Hh target genes. Hh targets Ptch1/Hhip are upregulated in Sufu-deficient lungs, consistent with Hh pathway activation. Surprisingly, protein levels of Hh target Gli1 are reduced. We also found that myofibroblasts are absent from many prospective alveoli of Sufu-deficient lungs. Myofibroblast development is dependent on PDGF signaling. Interestingly, analysis of the Pdgfra promoter revealed a canonical Gli-binding site where Gli1 resides. These studies support a model in which loss of Sufu contributes to compromised Pdgfra activation and disrupts myofibroblast development in the lung. Our work illustrates the unappreciated complexity of Hh responses where distinct Hh targets could respond differently depending on the availability of Gli proteins that control their expression.