Upon accumulation of improperly folded proteins in the Endoplasmic Reticulum (ER), the Unfolded Protein Response (UPR) is triggered to restore ER homeostasis. The induction of stress genes is a sine qua non condition for effective adaptive UPR. Although this requirement has been extensively described, the mechanisms underlying this process remain in part uncharacterized. Here, we show that p97/VCP, an AAA+ ATPase known to contribute to ER stress-induced gene expression, regulates the transcription factor GLI1, a primary effector of Hedgehog (Hh) signaling. Under basal (non-ER stress) conditions, GLI1 is repressed by a p97/VCP-HDAC1 complex while upon ER stress GLI1 is induced through a mechanism requiring both USF2 binding and increase histone acetylation at its promoter. Interestingly, the induction of GLI1 was independent of ligand-regulated Hh signaling. Further analysis showed that GLI1 cooperates with ATF6f to induce promoter activity and expression of XBP1, a key transcription factor driving UPR. Overall, our work demonstrates a novel role for GLI1 in the regulation of ER stress gene expression and defines the interplay between p97/VCP, HDAC1 and USF2 as essential players in this process.