Secreted morphogens such as the Drosophila TGF-beta homolog Decapentaplegic (Dpp) are thought to spread through target tissues and form long-range concentration gradients providing positional information. Using a GFP-Dpp fusion, we monitored a TGF-beta family member trafficking in situ throughout the target tissue and forming a long-range concentration gradient. Evidence is presented that long-range Dpp movement involves Dpp receptor and Dynamin functions. We also show that the rates of endocytic trafficking and degradation determine Dpp signaling range. We propose a model where the gradient is formed via intracellular trafficking initiated by receptor-mediated endocytosis of the ligand in receiving cells with the gradient slope controlled by endocytic sorting of Dpp toward recycling versus degradation.