Hyalinizing trabecular tumors of the thyroid are rare and mostly benign epithelial neoplasms of follicular cell origin, which have recently been shown to be underpinned by the PAX8-GLIS3 fusion gene. In our study, we sought to investigate the potential oncogenic mechanisms of the PAX8-GLIS3 fusion gene. Forced expression of PAX8-GLIS3 was found to increase proliferation, clonogenic potential and migration of human nonmalignant thyroid (Nthy-ori 3-1) and embryonic kidney (HEK-293) cells. Moreover, in xenografts, Nthy-ori 3-1 PAX8-GLIS3 expressing cells generated significantly larger and more proliferative tumors compared to controls. These oncogenic effects were found to be mediated through activation of the Sonic Hedgehog (SHH) pathway. Targeting of smoothened (SMO), a key protein in the SHH pathway, using the small molecule inhibitor Cyclopamine partially reversed the increased proliferation, colony formation and migration in PAX8-GLIS3 expressing cells. Our data demonstrate that the oncogenic effects of the PAX8-GLIS3 fusion gene are, at least in part, due to an increased activation of the SHH pathway.