The Hedgehog pathway functions as an organizer in embryonic development. Aberrant activation of the Hedgehog pathway has been reported in various types of malignant tumours. The GLI2 transcription factor is a key mediator of Hedgehog pathway but its contribution to neoplasia is poorly understood. To establish the role of GLI2 in osteosarcoma, we examined its expression by real‐time PCR using biopsy tissues. To examine the function of GLI2, we evaluated the growth of osteosarcoma cells and their cell cycle after GLI2 knockdown. To study the effect of GLI2 activation, we examined mesenchymal stem cell growth and the cell cycle after forced expression of GLI2. We found that GLI2 was aberrantly over‐expressed in human osteosarcoma biopsy specimens. GLI2 knockdown by RNA interferences prevented osteosarcoma growth and anchorage‐independent growth. Knockdown of GLI2 promoted the arrest of osteosarcoma cells in G₁ phase and was accompanied by reduced protein expression of the cell cycle accelerators cyclin D1, SKP2 and phosphorylated Rb. On the other hand, knockdown of GLI2 increased the expression of p21^cip1. In addition, over‐expression of GLI2 promoted mesenchymal stem cell proliferation and accelerated their cell cycle progression. Finally, evaluation of mouse xenograft models showed that GLI2 knockdown inhibited the growth of osteosarcoma in nude mice. Our findings suggest that inhibition of GLI2 may represent an effective therapeutic approach for patients with osteosarcoma. Copyright © 2011 Pathological Society of Great Britain and Ireland. Published by John Wiley & Sons, Ltd.