Morphogen concentration gradients that extend across developmental fields form by dispersion from source cells. In the wing disc, Hedgehog (Hh) produced by posterior compartment cells distributes in a concentration gradient to adjacent cells of the anterior compartment. We monitored Hh:GFP after pulsed expression, and analyzed the movement and colocalization of Hh, Patched (Ptc) and Smoothened (Smo) proteins tagged with GFP or mCherry and expressed at physiological levels from bacterial artificial chromosome transgenes. Hh:GFP moved to basal subcellular locations prior to release from posterior compartment cells that express it, and was taken up by basal cytonemes that extend to the source cells. Hh and Ptc were present in puncta that moved along the basal cytonemes and formed characteristic apical-basal distributions in the anterior compartment cells. The basal cytonemes required , , and , and both the Hh gradient and Hh signaling declined under conditions in which the cytonemes were compromised. These findings show that in the wing disc, Hh distributions and signaling are dependent upon basal release and uptake, and on cytoneme-mediated movement. No evidence for apical dispersion was obtained.