In the Drosophila wing, Hedgehog is made by cells of the posterior compartment and acts as a morphogen to pattern cells of the anterior compartment. High Hedgehog levels instruct L3/4 intervein fate, whereas lower levels instruct L3 vein fate. Transcriptional responses to Hedgehog are mediated by the balance between repressor and activator forms of Cubitus interruptus, CiR and CiA. Hedgehog regulates this balance through its receptor, Patched, which acts through Smoothened and thence a regulatory complex that includes Fused, Costal, Suppressor of Fused and Cubitus interruptus. It is not known how the Hedgehog signal is relayed from Smoothened to the regulatory complex nor how responses to different levels of Hedgehog are implemented. We have used chimeric and deleted forms of Smoothened to explore the signaling functions of Smoothened. A Frizzled/Smoothened chimera containing the Smo cytoplasmic tail (FFS) can induce the full spectrum of Hedgehog responses but is regulated by Wingless rather than Hedgehog. Smoothened whose cytoplasmic tail is replaced with that of Frizzled (SSF) mimics fused mutants, interfering with high Hedgehog responses but with no effect on low Hedgehog responses. The cytoplasmic tail of Smoothened with no transmembrane or extracellular domains (SmoC) interferes with high Hedgehog responses and allows endogenous Smoothened to constitutively initiate low responses. SmoC mimics costal mutants. Genetic interactions suggest that SSF interferes with high signaling by titrating out Smoothened, whereas SmoC drives constitutive low signaling by titrating out Costal. These data suggest that low and high signaling (1) are qualitatively different, (2) are mediated by distinct configurations of the regulatory complex and (3) are initiated by distinct activities of Smoothened. We present a model where low signaling is initiated when a Costal inhibitory site on the Smoothened cytoplasmic tail shifts the regulatory complex to its low state. High signaling is initiated when cooperating Smoothened cytoplasmic tails activate Costal and Fused, driving the regulatory complex to its high state. Thus, two activities of Smoothened translate different levels of Hedgehog into distinct intracellular responses.