The Hedgehog proteins are potent organizers of animal development. They carry a cholesterol ester at the C terminus of their signaling domain. The membrane anchoring mediated by this lipophilic modification was studied by means of an approach integrating cell biology, biochemistry, biophysics, and organic chemistry techniques. Sterol-modified and fluorescent-labeled Hedgehog-derived peptides and proteins were synthesized and investigated in biophysical and cell-biological assays. These experiments revealed that cholesterol alone anchors proteins to membranes with significant strength and half-times for spontaneous desorption of several hours. Its membrane anchoring ability is comparable to dual lipidation motifs such as double geranylgeranylation or S-palmitoylation plus S-farnesylation found in other lipidated proteins. The experiments also demonstrate that membrane binding changes dramatically if short lipidated peptides are equipped with a large protein. These data suggest that for Hedgehog release and subsequent signaling an interaction partner such as the Dispatched protein is necessary. In addition to these findings the described approach allows one to correlate biophysical data obtained with model peptides with data determined with fully functional proteins and to combine results from in vitro and in vivo experiments. It should be generally applicable to other membrane anchors and proteins.