A Residual N-Terminal Peptide Enhances Signaling of Depalmitoylated Hedgehog to the Patched Receptor

During their biosynthesis, Sonic hedgehog (Shh) morphogens are covalently modified by cholesterol at the C-terminus and palmitate at the N-terminus. Although both lipids initially anchor Shh to the plasma membrane of producing cells, it later translocates to the extracellular compartment to direct developmental fates in cells expressing the Patched (Ptch) receptor. Possible release mechanisms for dually lipidated Hh/Shh into the extracellular compartment are currently under intense debate. In this paper, we describe the serum-dependent conversion of the dually lipidated cellular precursor into a soluble cholesteroylated variant (Shh^C) during its release. Although Shh^C is formed in a Dispatched- and Scube2-dependent manner, suggesting the physiological relevance of the protein, the depalmitoylation of Shh^C during release is inconsistent with the previously postulated function of N-palmitate in Ptch receptor binding and signaling. Therefore, we analyzed the potency of Shh^C to induce Ptch-controlled target cell transcription and differentiation in Hh-sensitive reporter cells and in the Drosophila eye. In both experimental systems, we found that Shh^C was highly bioactive despite the absence of the N-palmitate. We also found that the artificial removal of N-terminal peptides longer than eight amino acids inactivated the depalmitoylated soluble proteins in vitro and in the developing Drosophila eye. These results demonstrate that N-depalmitoylated Shh^C requires an N-peptide of a defined minimum length for its signaling function to Ptch.