Previous work has identified Indian hedgehog (Ihh) as a major mediator of progesterone signaling during embryo implantation. Ihh acts through its downstream effector smoothened (Smo) to activate the GLI family of transcription factors. In order to gain a better understanding of Ihh action during embryo implantation, we expressed a Cre-recombinase-dependent constitutively activated SMO in the murine uterus using the Pgr^tm2(cre)Lyd (PR^cre) mouse model [Pgr^tm2(cre)Lyd Gt(ROSA)26Sor^{tm1(Smo/EYFP)Amc} (PR^cre/ SmoM2 )]. Female PR^cre/ SmoM2 mice were infertile. They exhibited normal serum progesterone levels and normal ovulation, but their ova failed to be fertilized in vivo and their uterus failed to undergo the artificially induced decidual response. Examination of the PR^cre/ SmoM2 uteri revealed numerous features such as uterine hypertrophy, the presence of a stratified luminal epithelial cell layer, a reduced number of uterine glands, and an endometrial stroma that had lost its normal morphologic characteristics. Microarray analysis of 3-mo-old PR^cre/ SmoM2 uteri demonstrated a chondrocytic signature and confirmed that constitutive activation of PR^cre/ SmoM2 increased extracellular matrix production. Thus, constitutive activation of Smo in the mouse uterus alters postnatal uterine differentiation which interferes with early pregnancy. These results provide new insight into the role of Hedgehog signaling during embryo implantation.