The Hedgehog (Hh) family of morphogenetic proteins has important instructional roles in metazoan development and human diseases. Lipid modified Hh is able to migrate to and program cells far away from its site of production despite being associated with membranes. To investigate the Hh spreading mechanism, we characterized Shifted (Shf) as a component in the Drosophila Hh pathway. We show that Shf is the ortholog of the human Wnt inhibitory factor (WIF), a secreted antagonist of the Wingless pathway. In contrast, Shf is required for Hh stability and for lipid-modified Hh diffusion. Shf colocalizes with Hh in the extracellular matrix and interacts with the heparan sulfate proteoglycans (HSPG), leading us to suggest that Shf could provide HSPG specificity for Hh. We also show that human WIF inhibits Wg signaling in Drosophila without affecting the Hh pathway, indicating that different WIF family members might have divergent functions in each pathway.