The deregulation of the sonic hedgehog (shh) signaling pathway in epidermal keratinocytes is a primary event leading to the formation of basal cell carcinoma (BCC). The mechanisms by which this pathway exerts this effect remain largely undefined. We demonstrate that overexpression of shh in HaCaT keratinocytes grown in organotypic cultures induced a basal cell phenotype, as evidenced by their morphology, trans-epithelial staining of cytokeratin 14, and suprabasalar proliferation. Shh also induced keratinocyte infiltration into the underlying collagen matrix. Constitutive shh expression was associated with increased phosphorylation of the epidermal growth factor receptor (EGFR) as well as jnk and raf. Additionally, levels of c-jun and matrix metalloproteinase-9 (MMP-9) protein were elevated in shh-expressing cells. Inhibition of EGFR activity with either the tyrphostin, AG1478, or blocking receptor-ligand interaction with the monoclonal antibody, C-225, blocked matrix infiltration. In contrast, exogenously supplied EGF significantly augmented the invasiveness of the HaCaT cells. These observations provide insight into the impact of deregulated shh on epidermal homeostasis. The findings further suggest that an intact EGF signaling axis cooperates with shh and is a critical mediator of matrix invasion in a tumor type characterized by disrupted shh.