Multipotent mesenchymal stromal cells (MSCs) increase tissue plasminogen activator (tPA) activity in astrocytes of the ischemic boundary zone, leading to increased neurite outgrowth in the brain. To probe the mechanisms that underlie MSC-mediated activation of tPA, we investigated the morphogenetic gene, sonic hedgehog (Shh) pathway. In vitro oxygen and glucose deprivation and coculture of astrocytes and MSCs were used to mimic an in vivo ischemic condition. Both real-time-PCR and western blot showed that MSC coculture significantly increased the Shh level and concomitantly increased tPA and decreased plasminogen activator inhibitor 1 (PAI-1) levels in astrocytes. Inhibiting the Shh signaling pathway with cyclopamine blocked the increase of tPA and the decrease of PAI-1 expression in astrocytes subjected to MSC coculture or recombinant mouse Shh (rm-Shh) treatment. Both MSCs and rm-Shh decreased the transforming growth factor-β1 level in astrocytes, and the Shh pathway inhibitor cyclopamine reversed these decreases. Both Shh-small-interfering RNA (siRNA) and Glil-siRNA downregulated Shh and Gli1 (a key mediator of the Shh transduction pathway) expression in cultured astrocytes and concomitantly decreased tPA expression and increased PAI-1 expression in these astrocytes after MSC or rm-Shh treatment. Our data indicate that MSCs increase astrocytic Shh, which subsequently increases tPA expression and decreases PAI-1 expression after ischemia.