The generation of mature and functional T cells is the endpoint of a long process that starts in the bone marrow or the fetal liver where hematopoietic stem cells (HSCs) reside. It requires orchestrated inputs from several signaling pathways. The identification of signaling cascades which affect the differentiation of lymphoid progenitors and HSCs is of unique importance for the understanding of the molecular mechanisms of hematopoiesis but also for the development of novel methods to culture, expand, manipulate and transplant adult HSCs to immunodeficient patients. Here, we identify a novel signaling pathway, the Hedgehog (Hh) signaling network, as a master positive regulator of T cell development and hematopoiesis in mammals. Hh is a secreted protein family that was originally described as a major regulator of cell fate decision and body segment polarity. In this proposal we demonstrate that inhibition of Hh signaling (using a conditional knock-out of Smoothened, the Hh signal transducer) abrogates the development of lymphoid progenitors in the thymus. We also show both in vitro and in vivo that Hh signaling is essential for the homeostasis and the differentiation of bone marrow HSCs. These data lead us to hypothesize that Hh signaling controls differentiation of intra- and extra-thymic hematopoietic progenitors and that the Hh signaling network is a novel master regulator of mammalian hematopoiesis. To test this hypothesis we will study the mechanisms of Hh function in the thymus and in the bone marrow where stem cells are generated and develop. In the thymus we will study the mechanisms of Smoothened (Smo) mediated signal transduction and the role of the Gli transcription factors (targets of Hh signaling) in thymocyte development. We will identify genes, targets of the Gli proteins that can control T cell development and we will address the role of Hh in mature T cell differentiation and function. In the bone marrow we will study in detail the effect of Smoothened deletion in the differentiation of adult hematopoietic stem cells and committed lymphoid and myeloid progenitors. We will complement these experiments with the study of novel Hh activating mouse mutants in which we will define the exact role of the Gli factors in the regulation of mammalian lymphopoiesis and hematopoiesis.