Müller glia can be stimulated to de-differentiate and become proliferating progenitor cells that regenerate neurons in the retina. The signaling pathways that regulate the formation of proliferating Müller glia-derived progenitor cells (MGPCs) are beginning to be revealed. The purpose of this study was to investigate whether Hedgehog (Hh) -signaling influences the formation of MGPCs in the chick retina. We find that Hh-signaling is increased in damaged retinas where MGPCs are known to form. Sonic Hedgehog (Shh) is normally present in the axons of ganglion cells, but becomes associated with Müller glia and MGPCs following retinal damage. Activation of Hh-signaling with recombinant human Shh or Smoothened agonist (SAG) increased levels of ptch, gli1, gli2, gli3, hes1 and hes5, and stimulated the formation of proliferating MGPCs in damaged retinas. In undamaged retinas, SAG or rhShh had no apparent effect upon the Müller glia. However, SAG combined with FGF2 potentiated the formation of MGPCs, whereas SAG combined with IGF1 stimulated the nuclear migration of Müller glia, but not the formation of MGPCs. Conversely, inhibition of Hh-signaling with KAAD-cyclopamine, Gli antagonists or antibody to Shh reduced numbers of proliferating MGPCs in damaged and FGF2-treated retinas. Hh-signaling potentiates Pax6, Klf4 and cFos expression in Müller glia during the formation of MGPCs. We find that FGF2/MAPK-signaling recruits Hh-signaling into the signaling network that drives the formation of proliferating MGPCs. Our findings implicate Hh-signaling as a key component of the network of signaling pathways that promote the de-differentiation of Müller glia and proliferation of MGPCs.