The remodeling process in bone yields numerous cytokines and chemokines that mediate crosstalk between osteoblasts and osteoclasts and also serve to attract and support metastatic tumor cells. The metastatic tumor cells disturb the equilibrium in bone that manifests as skeletal complications. The Hedgehog (Hh) pathway plays an important role in skeletogenesis. We hypothesized that the Hh pathway mediates an interaction between tumor cells and osteoblasts and influences osteoblast differentiation in response to tumor cells. We have determined that breast tumor cells have an activated Hh pathway characterized by upregulation of the ligand, IHH and transcription factor GLI1. Breast cancer cells interact with osteoblasts and cause an enhanced differentiation of pre-osteoblasts to osteoblasts that express increased levels of the osteoclastogenesis factors, RANKL and PTHrP. There is sustained expression of osteoclast-promoting factors, RANKL and PTHrP, even after the osteoblast differentiation ceases and apoptosis sets in. Moreover, tumor cells that are deficient in Hh signaling are compromised in their ability to induce osteoblast differentiation and consequently are inefficient in causing osteolysis. The stimulation of osteoblast differentiation sets the stage for osteoclast differentiation and overall promotes osteolysis. Thus, in the process of developing newer therapeutic strategies against breast cancer metastasis to bone it would worthwhile to keep in mind the role of the Hh pathway in osteoblast differentiation in an otherwise predominant osteolytic phenomenon.