Hedgehog (Hh) proteins are secreted molecules that function as organizers in animal development. In addition to being palmitoylated, Hh is the only metazoan protein known to possess a covalently-linked cholesterol moiety. The absence of either modification severely disrupts the organization of numerous tissues during development. It is currently not known how lipid-modified Hh is secreted and released from producing cells. We have performed a genome-wide RNAi screen in Drosophila melanogaster cells to identify regulators of Hh secretion. We found that cholesterol-modified Hh secretion is strongly dependent on coat protein complex I (COPI) but not COPII vesicles, suggesting that cholesterol modification alters the movement of Hh through the early secretory pathway. We provide evidence that both proteolysis and cholesterol modification are necessary for the efficient trafficking of Hh through the ER and Golgi. Finally, we identified several putative regulators of protein secretion and demonstrate a role for some of these genes in Hh and Wingless (Wg) morphogen secretion in vivo. These data open new perspectives for studying how morphogen secretion is regulated, as well as provide insight into regulation of lipid-modified protein secretion.