Constitutive Hedgehog (Hh) signaling underlies several human tumors, including basal cell carcinoma (BCC) and basaloid follicular hamartoma in skin. Intriguingly, superficial BCCs arise as de novo epithelial buds resembling embryonic hair germs, collections of epidermal cells whose development is regulated by canonical Wnt/beta-catenin signaling. Similar to embryonic hair germs, human BCC buds showed increased levels of cytoplasmic and nuclear beta-catenin and expressed early hair follicle lineage markers. We also detected canonical Wnt/ beta-catenin signaling in epithelial buds and hamartomas from mice expressing an oncogene, M2SMO, leading to constitutive Hh signaling in skin. Conditional overexpression of the Wnt pathway antagonist Dkk1 in M2SMO-expressing mice potently inhibited epithelial bud and hamartoma development without affecting Hh signaling. Our findings uncover a hitherto unknown requirement for ligand-driven, canonical Wnt/ beta-catenin signaling for Hh pathway-driven tumorigenesis, identify a new pharmacological target for these neoplasms and establish the molecular basis for the well-known similarity between early superficial BCCs and embryonic hair germs.