Studying the dynamic of gene regulatory networks is essential in order to understand the specific signals and factors that govern cell proliferation and differentiation during development. This also has direct implication in human health and cancer biology. The general transcriptional elongation regulator P-TEFb regulates the transcriptional status of many developmental genes. Its biological activity is controlled by an inhibitory complex composed of HEXIM and the 7SK snRNA. Here, we examine the function of HEXIM during Drosophila development. Our key finding is that HEXIM affects the Hedgehog signaling pathway. HEXIM knockdown flies display strong phenotypes and organ failures. In the wing imaginal disc, HEXIM knockdown initially induces ectopic expression of Hedgehog (Hh) and its transcriptional effector Cubitus interuptus (Ci). In turn, deregulated Hedgehog signaling provokes apoptosis, which is continuously compensated by apoptosis-induced cell proliferation. Thus, the HEXIM knockdown mutant phenotype does not result from the apoptotic ablation of imaginal disc; but rather from the failure of dividing cells to commit to a proper developmental program due to Hedgehog signaling defects. Furthermore, we show that ci is a genetic suppressor of hexim. Thus, HEXIM ensures the integrity of Hedgehog signaling in wing imaginal disc, by a yet unknown mechanism. To our knowledge, this is the first time that the physiological function of HEXIM has been addressed in such details in vivo.