A C-terminal motif targets hedgehog to axons, coordinating assembly of the Drosophila eye and brain

The developmental signal Hedgehog is distributed to two receptive fields by the photoreceptor neurons of the developing Drosophila retina. Delivery to the retina propagates ommatidial development across a precursor field. Transport along photoreceptor axons induces the development of postsynaptic neurons in the brain. Hedgehog is composed of N-terminal and C-terminal domains that dissociate in an autoproteolytic reaction that attaches cholesterol to the N-terminal cleavage product. Here, we show that the N-terminal domain is targeted to the retina when synthesized in the absence of the C-terminal domain. In contrast to studies that have focused on cholesterol as a determinant of subcellular localization, we find that the C-terminal domain harbors a conserved motif that overrides retinal localization, sending most of the autocleavage products into vesicles bound for growth cones or synapses. Competition between targeting signals at the opposite ends of Hedgehog apparently controls the match between eye and brain development.