In the stomach, strictly regulated cell adherens junctions are crucial in determining epithelial cell differentiation. Sonic Hedgehog (Shh) regulates epithelial cell differentiation in the adult stomach. We sought to identify whether Shh plays a role in regulating adherens junction protein E-cadherin as a mechanism for epithelial cell differentiation. Mouse nontumorigenic gastric epithelial (IMGE-5) cells treated with Hedgehog signaling inhibitor cyclopamine and anti-Shh 5E1 antibody or transduced with short hairpin RNA against Skinny Hedgehog (IMGE-5(Ski)) were cultured. A mouse model expressing a parietal cell-specific deletion of Shh (HKCre/Shh(KO)) was used to identify further changes in adherens and tight junctions. Inhibition of Hedgehog signaling in IMGE-5 cells caused loss of E-cadherin expression accompanied by disruption of F-actin cortical expression and relocalization of zonula occludens-1 (ZO-1). Loss of E-cadherin was also associated with increased proliferation in IMGE-5(Ski) cells and increased expression of the mucous neck cell lineage marker MUC6. Compared with membrane-expressed E-cadherin and ZO-1 protein in controls, dissociation of E-cadherin/β-catenin and ZO-1/occludin protein complexes was observed in HKCre/Shh(KO) mice. In conclusion, we demonstrate that Hedgehog signaling regulates E-cadherin expression that is required for the maintenance of F-actin cortical expression and stability of tight junction protein ZO-1.