Cholesterol modification of hedgehog is required for trafficking and movement, revealing an asymmetric cellular response to hedgehog.

Hedgehog family members are secreted proteins involved in numerous patterning mechanisms. Different posttranslational modifications have been shown to modulate Hedgehog biological activity. We investigated the role of these modifications in regulating subcellular localization of Hedgehog in the Drosophila embryonic epithelium. We demonstrate that cholesterol modification of Hedgehog is responsible for its assembly in large punctate structures and apical sorting through the activity of the sterol-sensing domain-containing Dispatched protein. We further show that movement of these specialized structures through the cellular field is contingent upon the activity of proteoglycans synthesized by the heparan sulfate polymerase Tout-Velu. Finally, we show that the Hedgehog large punctate structures are necessary only for a subset of Hedgehog target genes across the parasegmental boundary, suggesting that presentation of Hedgehog from different membrane compartments is responsible for Hedgehog functional diversity in epithelial cells.