Proteolysis that is inhibited by hedgehog targets Cubitus interruptus protein to the nucleus and converts it to a repressor.

Cell-cell communication at anterior/posterior compartment borders in Drosophila involves Hedgehog (Hh), a protein secreted by posterior cells, and Cubitus interruptus (Ci), a protein in the Hh response pathway in anterior cells. Although Ci is thought to have roles as a transcription factor repressing hh expression and activating target genes, it localizes in the cytoplasm of anterior cells. We report here the identification of a domain that tethers Ci in the cytoplasm and show that in some anterior cells, Ci is cleaved to generate a form that lacks the tethering domain. This form translocates to the nucleus where it represses hh and other target genes. Hh inhibits proteolysis of Ci, and we suggest that this inhibition leads to the observed patterns of expression of key target genes at the compartment border.