Sarcomas are a rare classification of tumor derived from tissues of mesenchymal origin including bone, fat, muscle, cartilage, and blood vessels. These tumors often grow rapidly and have limited treatment options with few significant therapeutic advances in recent years. Liposarcomas (LPSs), the most common type of malignant soft tissue sarcoma, are derived from mesenchymal progenitors that have undergone an adipogenic lineage commitment compared to their multipotent counterparts. Interestingly, the grade of differentiation within LPS can vary highly, and the differentiation status of these tumors can drastically affect prognosis and likelihood of metastasis, making tumor differentiation a potential mechanism to target in liposarcoma development. Here, we show that overexpression of the Hedgehog transcription factor Gli2 in dedifferentiated liposarcoma (DDLPS) cells represses adipogenic differentiation while simultaneously activating markers of osteoblast differentiation in vitro . In addition, we observed marked differences in cytokine expression and secretion, prompting us to perform orthotopic fat pad injections of control and Gli2 overexpressing DDLPS cells. Using flow cytometry, we observed distinct changes in fat pad macrophage populations, with a particular increase in M2-like macrophages. Taken together, we find that overexpression of Gli2 in DDLPS cells alters their differentiation capacity and interactions between tumor cells and macrophages, highlighting a novel role for this developmental transcription factor in liposarcoma pathogenesis.