Hedgehog (Hh) signaling is important for development and homeostasis in vertebrates and invertebrates. Ligand-independent, deregulated Hh signaling caused by loss of negative regulators such as Patched causes excessive cell proliferation, leading to overgrowth in Drosophila and tumors in humans, including basal-cell carcinoma and medulloblastoma. We show that in Drosophila deregulated Hh signaling also promotes cell survival by increasing the resistance to apoptosis. Surprisingly, cells with deregulated Hh activity do not protect themselves from apoptosis; instead, they promote cell survival of neighboring wild-type cells. This non-cell autonomous effect is mediated by Hh-induced Notch signaling, which elevates the protein levels of Drosophila inhibitor of apoptosis protein-1 (Diap-1), conferring resistance to apoptosis. In summary, we demonstrate that deregulated Hh signaling not only promotes proliferation but also cell survival of neighboring cells. This non-cell autonomous control of apoptosis highlights an underappreciated function of deregulated Hh signaling, which may help to generate a supportive micro-environment for tumor development.