Spatial regulation of Wingless morphogen distribution and signaling by Dally-like protein

Wingless (Wg) is a morphogen required for the patterning of many Drosophila tissues. Several lines of evidence implicate heparan sulfate-modified proteoglycans (HSPGs) such as Dally-like protein (Dlp) in the control of Wg distribution and signaling. We show that dlp is required to limit Wg levels in the matrix, contrary to the expectation from overexpression studies. dlp mutants show ectopic activation of Wg signaling at the presumptive wing margin and a local increase in extracellular Wg levels. dlp somatic cell clones disrupt the gradient of extracellular Wg, producing ectopic activation of high threshold Wg targets but reducing the expression of lower threshold Wg targets where Wg is limiting. Notum encodes a secreted protein that also limits Wg distribution, and genetic interaction studies show that dlp and Notum cooperate to restrict Wg signaling. These findings suggest that modification of an HSPG by a secreted hydrolase can control morphogen levels in the matrix.