Proteolytic processing of palmitoylated Hedgehog peptides specifies the 3-4 intervein region of the Drosophila wing.

Cell fate determination during development often requires morphogen transport from producing to distant responding cells. Hedgehog (Hh) morphogens present a challenge to this concept, as all Hhs are synthesized as terminally lipidated molecules that form insoluble clusters at the surface of producing cells. While several proposed Hh transport modes tie directly into these unusual properties, the crucial step of Hh relay from producing cells to receptors on remote responding cells remains unresolved. Using wing development in Drosophila melanogaster as a model, we show that Hh relay and direct patterning of the 3-4 intervein region strictly depend on proteolytic removal of lipidated N-terminal membrane anchors. Site-directed modification of the N-terminal Hh processing site selectively eliminated the entire 3-4 intervein region, and additional targeted removal of N-palmitate restored its formation. Hence, palmitoylated membrane anchors restrict morphogen spread until site-specific processing switches membrane-bound Hh into bioactive forms with specific patterning functions.