Sonic Hedgehog (SHH) medulloblastomas are brain tumours that arise in the posterior fossa. Cancer-propagating cells (CPCs) provide a reservoir of cells capable of tumour regeneration and relapse post-treatment. Understanding and targeting the mechanisms by which CPCs are maintained and expanded in SHH medulloblastoma could present novel therapeutic opportunities. We identified the aryl hydrocarbon receptor (AHR) pathway as a potent tumour suppressor in a SHH medulloblastoma mouse model. Ahr-deficient tumours and CPCs grown in vitro, showed elevated activation of the TGFβ mediator, SMAD3. Pharmacological inhibition of the TGFβ/SMAD3 signalling axis was sufficient to inhibit the proliferation and promote the differentiation of Ahr-deficient CPCs. Human SHH medulloblastomas with high expression of the AHR repressor (AHRR) exhibited a significantly worse prognosis compared to AHRR tumours in two independent patient cohorts. Together, these findings suggest that reduced AHR pathway activity promotes SHH medulloblastoma progression, consistent with a tumour suppressive role for AHR. We propose that TGFβ/SMAD3 inhibition may represent an actionable therapeutic approach for a subset of aggressive SHH medulloblastomas characterised by reduced AHR pathway activity.