Hedgehog signaling is required for the development of many organisms, including Drosophila. In flies, Hh patterns the embryonic epidermis and larval imaginal discs by regulating the transcription factor, Cubitus interruptus (Ci). To date, three levels of regulation have been identified: proteolytic processing into a repressor, nuclear import, and activation. In this report, we characterize the function of two Ci domains that are conserved in the vertebrate homologues, GLI1, GLI2, and GLI3. One domain includes the first two of five C2-H2 zinc-fingers. While conserved in all members of the GLI/Ci family, the first two fingers do not appear to make significant contacts with the DNA target sequence. Ci protein lacking this region is still able to interact with the cytoplasmic complex and activate transcription in embryos and wing imaginal discs, but it is no longer processed into the repressor form. The second domain, termed NR for "N-terminal Regulatory", binds Suppressor of Fused. Deletion of this region has little effect on embryonic patterning, but compromises cytoplasmic retention of Ci. Analysis of the amino acid sequence of this domain identifies 11 perfectly conserved serines and one tyrosine. We propose that this region may be modified, possibly by phosphorylation, to regulate Ci nuclear import. © 2005 Elsevier Inc. All rights reserved.