Hedgehog (Hh) shape up development by playing important role in signaling, and thereby controlling growth and pattern formation. It is for this reason that their spatial distribution is tightly regulated. The 19kDa active form of Hh is modified with a palmitate at its N-terminal and with cholesterol at its C-terminal. This dually lipid modified form of Hh act as a morphogen, and is also referred to as HhNp (Mann and Beachy, 2004). In most cases, they are released from producing cells and spread into adjacent non-expressing cells within the tissue, where it activates target gene expression in a concentration-dependent manner. In Drosophila, Lipophorin (Lpp) particles carry these lipid-modified forms of Hh and play a role in long range signaling in the developing wing disc. Further, these particles circulate throughout the larvae in the hemolymph to distribute nutrients mostly in the form of lipids to different tissues of the animal. Thus, Lpp plays important role in metabolism and development. Hh as a morphogen plays a very important role in development and patterning of embryo and imaginal discs in Drosophila. We wanted to understand the role of Hh in overall development of Drosophila. In my thesis work, I discovered a new form of Hh that is systemically circulating in the 3rd instar larva of Drosophila. I show that imaginal tissues do not produce this form of circulating Hh. Our experiments strongly suggest that systemic Hh can travel from one tissue to another, a feature that was previously unknown. I also show that it could rescue the growth of the imaginal disc, implying its ability to influence cell proliferation. Since the concentration of systemic Hh is low it fails to up regulate the target genes. I characterized fat body as a target of systemically circulating Hh. I clearly demonstrate that fat body transcribes most of the components of Hh signaling pathway except Hh. Further, Hh accumulates in the fat body during late 3rd instar larvae. That makes the fat body an ideal target of systemic Hh. This could shed light in understanding the role of Hh in overall development of Drosophila melanogaster that includes tissue-based interaction.