Primary cilia are enriched in signaling receptors, and defects in their formation or function can induce conditions such as polycystic kidney disease, postaxial hexadactyly, and microphthalmia. Mammalian Hedgehog (Hh) signaling is important in the development of primary cilia, and TMEM216, a transmembrane protein that localizes to the base of cilia, is also implicated in ciliogenesis in zebrafish. Here, we found that Tmem216-deficient mice had impaired Hh signaling and displayed typical ciliopathic phenotypes. These phenomena were also observed in cells deficient in TMEM216. Furthermore, TMEM216 interacted with core Hh signaling proteins, including SUFU, a negative regulator of Hh, and GLI2/GLI3, transcription factors downstream of Hh. The competition between TMEM216 and SUFU for binding to GLI2/GLI3 inhibited the cleavage of GLI2/GLI3 into their repressor forms, which resulted in the nuclear accumulation of full-length GLI2 and the decreased nuclear localization of cleaved GLI3, ultimately leading to the activation of Hh signaling. Together, these data suggest that the TMEM216-SUFU-GLI2/GLI3 axis plays a role in TMEM216 deficiency-induced ciliopathies and Hh signaling abnormalities.