Required in hedgehog (hh) expressing cells for production of appropriate signaling activity in embryos and in the imaginal precursors of adult tissues. Acts within the secretory pathway to catalyze N-terminal palmitoylation of Hh; this lipid modification is required for the embryonic and larval patterning activities of the Hh signal. Not required for Wg signaling. hexadecanoyl-CoA + N-terminal L-cysteinyl-[protein] = CoA + H(+) + N-terminal N-hexadecanoyl-L-cysteinyl-[protein] hexadecanoyl-CoA + N-terminal L-cysteinyl-[protein]-C-terminal glycyl cholesterol ester = CoA + H(+) + N-terminal N-hexadecanoyl-L-cysteinyl-[protein]-C-terminal glycyl cholesterol ester Expressed both maternally and zygotically. Belongs to the membrane-bound acyltransferase family. HHAT subfamily.