Meniscal tears are associated with a high risk of osteoarthritis but currently have no disease-modifying therapies. Using a Gli1 reporter line, we found that Gli1⁺ cells contribute to the development of meniscus horns from 2 weeks of age. In adult mice, Gli1⁺ cells resided at the superficial layer of meniscus and expressed known mesenchymal progenitor markers. In culture, meniscal Gli1⁺ cells possessed high progenitor activities under the control of Hh signal. Meniscus injury at the anterior horn induced a quick expansion of Gli1-lineage cells. Normally, meniscal tissue healed slowly, leading to cartilage degeneration. Ablation of Gli1⁺ cells further hindered this repair process. Strikingly, intra-articular injection of Gli1⁺ meniscal cells or an Hh agonist right after injury accelerated the bridging of the interrupted ends and attenuated signs of osteoarthritis. Taken together, our work identified a novel progenitor population in meniscus and proposes a new treatment for repairing injured meniscus and preventing osteoarthritis.