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.

Heparan sulfate proteoglycans (HSPGs), a class of glycosaminoglycan-modified proteins, control diverse patterning events via their regulation of growth-factor signaling and morphogen distribution. In C. elegans, zebrafish, and the mouse, heparan sulfate (HS) biosynthesis is required for normal axon guidance, and mutations affecting Syndecan (Sdc), a transmembrane HSPG, disrupt axon guidance in Drosophila embryos. Glypicans, a family of glycosylphosphatidylinositol (GPI)-linked HSPGs, are expressed on axons and growth cones in vertebrates, but their role in axon guidance has not been determined. We demonstrate here that the Drosophila glypican Dally-like protein (Dlp) is required for proper axon guidance and visual-system function. Mosaic studies revealed that Dlp is necessary in both the retina and the brain for different aspects of visual-system assembly. Sdc mutants also showed axon guidance and visual-system defects, some that overlap with dlp and others that are unique. dlp+ transgenes were able to rescue some sdc visual-system phenotypes, but sdc+ transgenes were ineffective in rescuing dlp abnormalities. Together, these findings suggest that in some contexts HS chains provide the biologically critical component, whereas in others the structure of the protein core is also essential.