Hedgehog (HH) is a major secreted morphogen involved in development, stem cell maintenance and oncogenesis [1, 2]. In Drosophila wing imaginal discs, HH produced in the posterior compartment diffuses into the anterior compartment to control target gene transcription via the transcription factor Cubitus interruptus (CI). The first steps in the reception and transduction of the HH signal are mediated by its receptor Patched (PTC) [3] and the seven-transmembrane-domain protein Smoothened (SMO) [4, 5]. PTC and HH control SMO by regulating its stability, trafficking, and phosphorylation (for review, see [6]). SMO interacts directly with the Ser-Thr protein kinase Fused (FU) and the kinesin-related protein Costal2 (COS2), which interact with each other and with CI in an intracellular Hedgehog transducing complex [7-9]. We show here that HH induces FU targeting to the plasma membrane in a SMO-dependent fashion and that, reciprocally, FU controls SMO stability and phosphorylation. FU anchorage to the membrane is sufficient to make it a potent SMO-dependent, PTC-resistant activator of the pathway. These findings reveal a novel positive-feedback loop in HH transduction and are consistent with a model in which FU and SMO, by mutually enhancing each other's activities, sustain high levels of signaling and render the pathway robust to PTC level fluctuations.