Keloids are benign fibroproliferative skin tumors caused by aberrant wound healing that can negatively impact patient quality of life. The lack of animal models has limited research on pathogenesis or developing effective treatments, and the etiology of keloids remains unknown. Here, we found that the characteristics of stem-like cells from keloid lesions and the surrounding dermis differ from those of normal skin. Furthermore, the HEDGEHOG (HH) signal and its downstream transcription factor GLI1 were upregulated in keloid patient–derived stem-like cells. Inhibition of the HH-GLI1 pathway reduced the expression of genes involved in keloids and fibrosis-inducing cytokines, including osteopontin. Moreover, the HH signal inhibitor vismodegib reduced keloid reconstituted tumor size and keloid-related gene expression in nude mice and the collagen bundle and expression of cytokines characteristic for keloids in ex vivo culture of keloid tissues. These results implicate the HH-GLI1 pathway in keloid pathogenesis and suggest therapeutic targets of keloids.