The conserved family of Hedgehog (Hh) proteins acts as short- and long-range secreted morphogens, controlling tissue patterning and differentiation during embryonic development(1). Mature Hh carries hydrophobic palmitic acid and cholesterol modifications essential for its extracellular spreading(2). Various extracellular transportation mechanisms for Hh have been suggested, but the pathways actually used for Hh secretion and transport in vivo remain unclear. Here we show that Hh secretion in Drosophila wing imaginal discs is dependent on the endosomal sorting complex required for transport (ESCRT)(3). In vivo the reduction of ESCRT activity in cells producing Hh leads to a retention of Hh at the external cell surface. Furthermore, we show that ESCRT activity in Hh-producing cells is required for long-range signalling. We also provide evidence that pools of Hh and ESCRT proteins are secreted together into the extracellular space in vivo and can subsequently be detected together at the surface of receiving cells. These findings uncover a new function for ESCRT proteins in controlling morphogen activity and reveal a new mechanism for the transport of secreted Hh across the tissue by extracellular vesicles, which is necessary for long-range target induction.