Hedgehog (Hh) signaling patterns embryonic tissues and contributes to homeostasis in adults. In Drosophila, Hh transport and signaling are thought to occur along a specialized class of actin-rich filopodia, termed cytonemes. Here, we report that Interference hedgehog (Ihog) not only forms a Hh receptor complex with Patched to mediate intracellular signaling, but Ihog also engages in trans-homophilic binding leading to cytoneme stabilization in a manner independent of its role as the Hh receptor. Both functions of Ihog (trans-homophilic binding for cytoneme stabilization and Hh binding for ligand sensing) involve a heparin-binding site on the first fibronectin repeat of the extracellular domain. Thus, the Ihog-Ihog interaction and the Hh-Ihog interaction cannot occur simultaneously for a single Ihog molecule. By combining experimental data and mathematical modeling, we determined that Hh-Ihog heterophilic interaction dominates and Hh can disrupt and displace Ihog molecules involved in trans-homophilic binding. Consequently, we proposed that the weaker Ihog-Ihog trans interaction promotes and stabilizes direct membrane contacts along cytonemes and that, as the cytoneme encounters secreted Hh ligands, the ligands trigger release of Ihog from trans Ihog-Ihog complex enabling transport or internalization of the Hh ligand-Ihog-Patched -receptor complex. Thus, the seemingly incompatible functions of Ihog in homophilic adhesion and ligand binding cooperate to assist Hh transport and reception along the cytonemes.