The secreted protein Hedgehog (Hh) transmits a signal from posterior to anterior cells that is essential for limb development in insects and vertebrates. In Drosophila, Hh has been thought to act primarily to induce localized expression of Decapentaplegic and Wingless which in turn relay patterning cues at long range. We report here that Hh plays an additional role in patterning the wing. By replacing endogenous Hh activity with that of a membrane-tethered form of Hh, we show that Hh acts directly to pattern the central region of the wing, in addition to its role as an inducer of Dpp. Comparing the biological activities of secreted and membrane-tethered Hh provides evidence that Hh forms a local concentration gradient and functions as a concentration-dependent morphogen in the fly wing.