The biological role of the transcription factor GLI1 in the regulation of tumor growth is well established; however, the molecular events modulating this phenomenon remain elusive. Here, we demonstrate a novel mechanism underlying the role of GLI1 as an effector of TGFβ signaling in the regulation of gene expression in cancer cells. TGFβ stimulates GLI1 activity in cancer cells and requires its transcriptional activity to induce BCL2 expression. Analysis of the mechanism regulating this interplay identified a new transcriptional complex including GLI1 and the TGFβ-regulated transcription factor, SMAD4. We demonstrate that SMAD4 physically interacts with GLI1 for concerted regulation of gene expression and cellular survival. Activation of the TGFβ pathway induces GLI1-SMAD4 complex binding to the BCL2 promoter whereas disruption of the complex through SMAD4 RNAi depletion impairs GLI1-mediated transcription of BCL2 and cellular survival. Further characterization demonstrated that SMAD2 and the histone acetyltransferase, PCAF, participate in this regulatory mechanism. Both proteins bind to the BCL2 promoter and are required for TGFβ- and GLI1-stimulated gene expression. Moreover, SMAD2/4 RNAi experiments showed that these factors are required for the recruitment of GLI1 to the BCL2 promoter. Finally, we determined whether this novel GLI1 transcriptional pathway could regulate other TGFβ targets. We found that two additional TGFβ-stimulated genes, INTERLEUKIN-7 and CYCLIN D1, are dependent upon the intact GLI1-SMAD-PCAF complex for transcriptional activation. Collectively, these results define a novel epigenetic mechanism that uses the transcription factor GLI1 and its associated complex as a central effector to regulate gene expression in cancer cells.