The spatial and temporal control of gene expression is key to generation of specific cellular fates during development. Studies of the transcriptional repressor REST/NRSF (RE1 Silencing Transcription factor/Neural Restrictive Silencing Factor) have provided important insight into the role that epigenetic modifications play in differential gene expression. Functional studies place REST within multiple developmental pathways and transcriptional networks. However, findings between different groups are often incongruent, and little progress has been made on understanding the embryonic lethality of the Rest knockout mice. What emerges from the controversies surrounding REST function is that the cellular context of REST is paramount. Here, zebrafish embryos are used to study REST function within the broader context of a developing organism. The approach was to assay changes in gene expression following Rest knockdown in various backgrounds. This method revealed a novel interaction between zebrafish Rest and the Hedgehog (Hh) signaling pathway. It was observed that Rest knockdown enhances or represses Hh signaling in a context-dependent manner. In wild-type embryos and embryos with elevated Hh signaling, Rest knockdown augments transcription of Hh target genes. Conversely, in contexts where Hh signaling is diminished, Rest knockdown has the opposite effect and Hh target gene expression is further attenuated. Epistatic analysis revealed that Rest interacts with the Hh pathway at a step downstream of Smo. Furthermore, the findings demonstrate that the bifunctional transcription factor Gli2a is key to Rest modulation of the Hh response. The role of Rest as a regulator of Hh signaling has broad implications for many developmental contexts where REST and Hh signaling act.