The Drosophila segment polarity gene hedgehog encodes a member of a family of secreted proteins that are involved in a variety of patterning processes, in both vertebrates and invertebrates. Some of these processes depend upon short-range or contact-dependent interactions, whereas others seem to involve long-range signalling. Two different models have been proposed to account for the execution of these contrasting processes by the same proteins: one postulates that Hedgehog acts exclusively over short distances, its long-range influences being effected through regulation of other signalling factors; the second postulates that different aspects of Hedgehog activity are mediated by distinct forms of the protein that are generated by autoproteolysis.We have investigated these models by mutating the hedgehog coding region such that only the amino-terminal or carboxy-terminal half of the protein is secreted. Deletion of the carboxy-terminal portion has little effect on the signalling activity of the protein, whereas abolishing the secretion of the amino-terminal half leads to a complete loss of signalling. In addition, we find that increases in the level of expression within the normal hedgehog transcriptional domain of either the wild-type protein or the carboxy-terminal-deleted form expand the range of activity to a limited extent, but have only minor effects on cell identity.In Drosophila, all of the signalling activity of Hedgehog resides in the amino-terminal portion of the protein, the secretion of which is essential for its function. The range of Hedgehog is limited by the close association of the amino-terminal peptide with the cell surface but can be extended by elevating the level of its expression.