Secreted signaling molecules released from a restricted source are of great importance during embryonic development because they elicit induction, proliferation, differentiation, and patterning events in target cells . Fgf8 is a member of the fibroblast growth factor family with key inductive functions during vertebrate development of, for example, the forebrain , midbrain , cerebellum , heart , inner ear , and mesoderm . However, the mechanism by which the signaling range of Fgf8 is controlled in a field of target cells is unknown. We studied Fgf8 as a potential morphogen in the nascent neuroectoderm of living zebrafish embryos. We find that spreading of epitope-tagged Fgf8 through target tissue is carefully controlled by endocytosis and subsequent degradation in lysosomes, or "restrictive clearance," from extracellular spaces. If internalization is inhibited, Fgf8 protein accumulates extracellularly, spreads further, and activates target gene expression over a greater distance. Conversely, enhanced internalization increases Fgf8 uptake and shortens its effective signaling range. Our results suggest that Fgf8 spreads extracellularly by a diffusion-based mechanism and demonstrate that target cells can actively influence, through endocytosis and subsequent degradation, the availability of Fgf8 ligand to other target cells.