Hedgehog (Hh) signaling regulates cell fate and self-renewal in development and cancer. Canonical Hh signaling is mediated by Hh ligand binding to the receptor Patched (Ptch), which in turn activates Gli-mediated transcription through Smoothened (Smo), the molecular target of the Hh pathway inhibitors used as cancer therapeutics. Small cell lung cancer (SCLC) is a common, aggressive malignancy with universally poor prognosis. Although preclinical studies have shown that Hh inhibitors block the self-renewal capacity of SCLC cells, the lack of activating pathway mutations have cast doubt over the significance of these observations. In particular, the existence of autocrine, ligand-dependent Hh signaling in SCLC has been disputed. In a conditional Tp53;Rb1 mutant mouse model of SCLC, we now demonstrate a requirement for the Hh ligand Sonic Hedgehog (Shh) for the progression of SCLC. Conversely, we show that conditional Shh overexpression activates canonical Hh signaling in SCLC cells, and markedly accelerates tumor progression. When compared to mouse SCLC tumors expressing an activating, ligand-independent Smo mutant, tumors overexpressing Shh exhibited marked chromosomal instability and Smoothened-independent upregulation of Cyclin B1, a putative non-canonical arm of the Hh pathway. In turn, we show that overexpression of Cyclin B1 induces chromosomal instability in mouse embryonic fibroblasts lacking both Tp53 and Rb1. These results provide strong support for an autocrine, ligand-dependent model of Hh signaling in SCLC pathogenesis, and reveal a novel role for non-canonical Hh signaling through the induction of chromosomal instability.