Tissue regeneration requires the activation of a set of specific growth signaling pathways. The identity of these cascades and their biological roles are known; however, the molecular mechanisms regulating the interplay between these pathways remain poorly understood. Here, we define a new role for SULFATASE 2 (SULF2) in regulating tissue regeneration and define the WNT-GLI1 axis as a novel downstream effector for this sulfatase in a liver model of tissue regeneration. SULF2 is a heparan sulfate 6-O-endosulfatase, which releases growth factors from extracellular storage sites turning active multiple signaling pathways. We demonstrate that SULF2-KO mice display delayed regeneration after partial hepatectomy (PH). Mechanistic analysis of the SULF2-KO phenotype showed a decrease in WNT signaling pathway activity in vivo. In isolated hepatocytes, SULF2 deficiency blocked WNT-induced β-CATENIN nuclear translocation, TCF activation, and proliferation. Furthermore, we identified the transcription factor GLI1 as a novel target of the SULF2-WNT cascade. WNT induces GLI1 expression in a SULF2- and β-CATENIN-dependent manner. GLI1-KO mice phenocopied the SULF2-KO, showing delayed regeneration and decreased hepatocyte proliferation. Moreover, we identified CYCLIN D1, a key mediator of cell growth during tissue regeneration, as a GLI1 transcriptional target. GLI1 binds to the cyclin d1 promoter and regulates its activity and expression. Finally, restoring GLI1 expression in the liver of SULF2-KO mice after PH rescues CYCLIN D1 expression and hepatocyte proliferation to wild-type levels. Thus, together these findings define a novel pathway in which SULF2 regulates tissue regeneration in part via the activation of a novel WNT-GLI1-CYCLIN D1 pathway.