Drosophila Wingless (Wg) is the founding member of the Wnt family of secreted 
proteins. During the wing development, Wg acts as a morphogen whose 
concentration gradient provides positional cues for wing patterning. The 
molecular mechanism(s) of Wg gradient formation is not fully understood. Here, 
we systematically analyzed the roles of glypicans Dally and Dally-like protein 
(Dlp), the Wg receptors Frizzled (Fz) and Fz2, and the Wg co-receptor Arrow 
(Arr) in Wg gradient formation in the wing disc. We demonstrate that both Dally 
and Dlp are essential and have different roles in Wg gradient formation. The 
specificities of Dally and Dlp in Wg gradient formation are at least partially 
achieved by their distinct expression patterns. To our surprise, although Fz2 
was suggested to play an essential role in Wg gradient formation by ectopic 
expression studies, removal of Fz2 activity does not alter the extracellular Wg 
gradient. Interestingly, removal of both Fz and Fz2, or Arr causes enhanced 
extracellular Wg levels, which is mainly resulted from upregulated Dlp levels. 
We further show that Notum, a negative regulator of Wg signaling, downregulates 
Wg signaling mainly by modifying Dally. Last, we demonstrate that Wg movement is 
impeded by cells mutant for both dally and dlp. Together, these new findings 
suggest that the Wg morphogen gradient in the wing disc is mainly controlled by 
combined actions of Dally and Dlp. We propose that Wg establishes its 
concentration gradient by a restricted diffusion mechanism involving Dally and 
Dlp in the wing disc.