The tumor microenvironment is critical to cancer growth and therapy resistance. We previously characterized human ovarian carcinoma-associated mesenchymal stem cells (CA-MSCs). CA-MSCs are multi-potent cells that can differentiate into tumor microenvironment components including fibroblasts, myofibroblasts and adipocytes. We previously reported CA-MSCs, compared to normal MSCs, express high levels of BMP proteins and promote tumor growth by increasing numbers of cancer stem-like cells (CSCs). We demonstrate here that ovarian tumor cell-secreted Hedgehog (HH) induces CA-MSC BMP4 expression. CA-MSC-derived BMP4 reciprocally increases ovarian tumor cell HH expression indicating a positive feedback loop. Interruption of this loop with a HH pathway inhibitor or BMP4 blocking antibody decreases CA-MSC-derived BMP4 and tumor-derived HH preventing enrichment of CSCs and reversing chemotherapy resistance. The impact of HH inhibition was only seen in CA-MSC-containing tumors, indicating the importance of a humanized stroma. These results are reciprocal to findings in pancreatic and bladder cancer, suggesting HH signaling effects are tumor tissue specific warranting careful investigation in each tumor type. Collectively, we define a critical positive feedback loop between CA-MSC-derived BMP4 and ovarian tumor cell-secreted HH and present evidence for the further investigation of HH as a clinical target in ovarian cancer.