Gut mesenchyme provides key stem cell niche signals such as Wnt ligands, but how these signals are regulated is unclear. Because Hedgehog (Hh) signaling is critical for gut mesenchymal development and tumorigenesis, we investigated Hh-mediated mechanisms by analyzing mice deleted for key negative regulators of Hh signaling, Sufu and/or Spop, in the gut mesenchyme, and demonstrated their dosage-dependent roles. Although these mutants exhibit abnormal mesenchymal cell growth and functionally defective muscle layers, villification is completed with proper mesenchymal clustering, implying a permissive role for Hh signaling. These mesenchymal defects are partially rescued by Gli2 reduction. Consistent with increased epithelial proliferation caused by abnormal Hh activation in development, Sufu reduction promotes intestinal tumorigenesis, whereas Gli2 heterozygosity suppresses it. Our analyses of chromatin and GLI2 binding genomic regions reveal its transcriptional regulation of stem cell niche signals through enhancers, providing mechanistic insight into the intestinal stem cell niche in development and tumorigenesis.