The distribution and activities of morphogenic signaling proteins such as Hedgehog (Hh) and Wingless (Wg) depend on heparan sulfate proteoglycans (HSPGs). HSPGs consist of a core protein with covalently attached heparan sulfate glycosaminoglycan (GAG) chains. We report that the unmodified core protein of Dally-like (Dlp), an HSPG required for cell-autonomous Hh response in Drosophila embryos, alone suffices to rescue embryonic Hh signaling defects. Membrane tethering but not specifically the glycosylphosphatidylinositol linkage characteristic of glypicans is critical for this cell-autonomous activity. Our studies further suggest divergence of the two Drosophila and six mammalian glypicans into two functional families, an activating family that rescues cell-autonomous Dlp function in Hh response and a family that inhibits Hh response. Thus, in addition to the previously established requirement for HSPG GAG chains in Hh movement, these findings demonstrate a positive cell-autonomous role for a core protein in morphogen response in vivo and suggest the conservation of a network of antagonistic glypican activities in the regulation of Hh response.