The Suppressor of Fused [Su(fu)] protein plays a conserved role in the regulation of Gli transcription factors of the hedgehog (Hh) signaling pathway that controls cell fate and tissue patterning during development. In both Drosophila and mammals, Su(fu) represses Gli-mediated transcription, but the mode of its action is not completely understood. Recent evidence suggests that Su(fu) physically interacts with the Gli proteins and, when overexpressed, sequesters Gli in the cytoplasm. However, Su(fu) also traverses into the nucleus under the influence of a serine-threonine kinase, Fused (Fu), and has the ability to form a DNA-binding complex with Gli, suggesting that it has a nuclear function. Here we report that the mouse homolog of Su(fu) [mSu(fu)] specifically interacts with SAP18, a component of the mSin3 and histone deacetylase complex. In addition, we demonstrate that mSu(fu) functionally cooperates with SAP18 to repress transcription by recruiting the SAP18-mSin3 complex to promoters containing the Gli-binding element. These results provide biochemical evidence that Su(fu) directly participates in modulating the transcriptional activity of Gli.