Hedgehog (Hh) signalling plays a crucial role in the development and patterning of many tissues in both vertebrates and invertebrates. Aberrations in this pathway lead to severe developmental defects and cancer. Hh signal transduction in receiving cells is a well studied phenomenon; however questions still remain concerning the mechanism of repression of the pathway activator Smoothened (Smo) in the absence of Hh. Here we describe a novel repressor of the Hh pathway, Target of Wingless (Tow). Tow represents the Drosophila homolog of a conserved uncharacterised protein family. We show that Tow acts in Hh receiving cells, where its overexpression represses all levels of Hh signalling, and that this repression occurs upstream or at the level of Smo and downstream of the Hh receptor Patched (Ptc). In addition, we find that like Ptc, overexpression of Tow causes an accumulation of lipophorin in the wing disc. We demonstrate that loss of tow enhances different ptc alleles in a similar manner to another pathway repressor, Suppressor of Fused (SuFu), possibly through mediating Ptc dependant lipophorin internalisation. Combined, these results demonstrate that Tow is an important novel regulator of the Hh pathway in the wing imaginal disc, and may shed light on the mechanism of Ptc repression of Smo.