To investigate the cellular role of dual specificity Yak1-related kinase (Dyrk) 1, a nuclear localized dual specificity protein kinase, we examined its effect on transcriptional regulation using reporter gene assays. We found that Dyrk1 can substantially enhance Gli1-dependent, but not LEF-1-, c-Jun-, or Elk-dependent, gene transcription. In part, Dyrk1 does this through retaining Gli1 in the nucleus. However, we also demonstrate that Dyrk1 can enhance the transcriptional activity of Gli1-AHA, a nuclear export mutant, suggesting that Dyrk1 may be more directly involved in regulating the transcriptional activity of Gli1. In addition, Dyrk1 acted synergistically with Sonic hedgehog (Shh) to induce gene transcription and differentiation in mouse C3H10T1/2 cells. The failure of Shh to stimulate Dyrk1 kinase activity suggests that Dyrk1 may not be directly regulated by the Shh signaling pathway but functionally interacts with it. Thus, Gli1 transcriptional activity may be subjected to further regulation in the cell nucleus by a pathway distinct from Shh signaling, one mediated by Dyrk1.