Members of the hedgehog (hh) gene family encode a novel class of proteins implicated in positional signalling in both invertebrates and vertebrates. In Drosophila, the hh gene has been shown to regulate patterning of the imaginal discs, the precursors of the insect limbs. In a remarkably similar fashion, the function and expression of the sonic hedgehog (shh) gene is closely associated with the 'zone of polarizing activity' (ZPA) that controls antero-posterior patterning of the vertebrate limb. Both of these functions suggest a role for hedgehog family proteins as morphogens. An alternative possibility, however, is that hh and its homologues act to control the expression of other instructive signalling molecules.We have explored this issue by examining the effects on Drosophila wing patterning of ectopically expressing varying levels of hh and shh, as well as of the putative hh target gene, decapentaplegic (dpp), a member of the transforming growth factor-beta family of signalling molecules. We find that different levels of hh activity can induce graded changes in the patterning of the wing, and that zebrafish shh acts in a similar though attenuated fashion. Varying levels of ectopic hh and shh activity can differentially activate transcription of the patched and dpp genes. Furthermore, ectopic expression of dpp alone is sufficient to induce the pattern alterations caused by ectopic hh or shh activity.Thus, hh family proteins can elicit different responses in a dose-dependent manner in the imaginal disc. The principal function of hh, however, is to activate transcription of dpp at the compartment boundary, thereby establishing a source of dpp activity that is the primary determinant of antero-posterior patterning.