Hedgehog (HH) signaling in vertebrates is dependent on the primary cilium, an organelle that scaffolds signal transduction. HH signals induce Smoothened (SMO) enrichment in the cilium and indirectly triggers the conversion of GLI proteins into transcriptional activators of HH target genes. Recently, SMO has been shown to inhibit protein kinase A (PKA). To test the hypothesis that SMO specifically inhibits PKA at cilia to activate the HH signal transduction pathway, we developed a ciliary PKA biosensor. Activation of the HH signal transduction pathway by either Sonic hedgehog (SHH) or SMO agonist (SAG) inhibited ciliary PKA activity. Blocking SMO phosphorylation by GRK2/3 prevented ciliary SMO from inhibiting ciliary PKA activity. Gai was dispensable for SMO inhibition of ciliary PKA. In contrast, mutating the SMO C-terminal tail protein kinase inhibitor (PKI) pseudosubstrate site interfered with the ability of SMO to inhibit ciliary PKA. Therefore, HH signaling is transduced via SMO direct inhibition of PKA at cilia, in a manner dependent on GRK2/3.