The Drosophila Lipoprotein particles bear lipid-linked morphogens on their surface and are required for long-range signaling activity of Wingless and Hedgehog. They also bind a wide variety of gpi-linked proteins. Whether any of these proteins affect morphogen signaling is unknown. Here, I show that the gpi-linked heparan sulfate proteoglycan Dally is released from cell membranes and binds to lipoprotein particles both with and without its lipid anchor. Hedgehog signaling efficiency is reduced in Dally mutant discs, but can be rescued non-autonomously by expression of non-gpi-modified Dally. This Dally isoform colocalizes with Hedgehog, Patched and Lipophorin in endosomes and increases Hedgehog signaling efficiency without affecting Hedgehog distribution. These data show that Hedgehog signaling activity can be influenced by other Lipophorin-associated proteins, and suggest Lipoproteins provide a platform for regulation of morphogen signaling.