Hedgehog (Hh) proteins act through both short-range and long-range signalling to pattern tissues during invertebrate and vertebrate development. The mechanisms allowing Hedgehog to diffuse over a long distance and to exert its long-range effects are not understood. Here we identify a new Drosophila gene, named tout-velu, that is required for diffusion of Hedgehog. Characterization of tout-velu shows that it encodes an integral membrane protein that belongs to the EXT gene family. Members of this family are involved in the human multiple exostoses syndrome, which affects bone morphogenesis. Our results, together with the previous characterization of the role of Indian Hedgehog in bone morphogenesis, lead us to propose that the multiple exostoses syndrome is associated with abnormal diffusion of Hedgehog proteins. These results show the existence of a new conserved mechanism required for diffusion of Hedgehog.