Glypican-3 (GPC3) is a heparan sulfate (HS) proteoglycan that is bound to the cell membrane through a glycosylphosphatidylinositol link. This glypican regulates embryonic growth by inhibiting the hedgehog (Hh) signaling pathway. GPC3 binds Hh and competes with Patched (Ptc), the Hh receptor, for Hh binding. The interaction of Hh with GPC3 triggers the endocytosis and degradation of the GPC3-Hh complex with the consequent reduction of Hh available for binding to Ptc. Currently, the molecular mechanisms by which the GPC3-Hh complex is internalized remains unknown. Here we show that the low-density-lipoprotein receptor-related protein-1 (LRP1) mediates the Hh-induced endocytosis of the GPC3-Hh complex, and that this endocytosis is necessary for the Hh-inhibitory activity of GPC3. Furthermore, we demonstrate that GPC3 binds through its HS chains to LRP1, and that this interaction causes the removal of GPC3 from the lipid rafts domains.