Hedgehog signalling plays a fundamental role in the control of metazoan development, cell proliferation and differentiation, as highlighted by the fact that its deregulation is associated with the development of many human tumours. SUFU is an essential intracellular negative regulator of mammalian Hedgehog signalling and acts by binding and modulating the activity of GLI transcription factors. Despite its central importance, little is known about SUFU regulation and the nature of SUFU–GLI interaction. Here, the crystal and small-angle X-ray scattering structures of full-length human SUFU and its complex with the key SYGHL motif conserved in all GLIs are reported. It is demonstrated that GLI binding is associated with major conformational changes in SUFU, including an intrinsically disordered loop that is also crucial for pathway activation. These findings reveal the structure of the SUFU–GLI interface and suggest a mechanism for an essential regulatory step in Hedgehog signalling, offering possibilities for the development of novel pathway modulators and therapeutics.