Abstract Patterning of the vertebrate optic vesicle into proximal/optic stalk and distal/neural retina involves midline-derived Hedgehog (Hh) signalling, which promotes stalk specification. In the absence of Hh signalling, the stalks are not specified, causing cyclopia. Recent studies showed that the cell adhesion molecule Cdon forms a heteromeric complex with the Hh receptor Patched 1 (Ptc1). This receptor complex binds Hh and enhances signalling activation, indicating that Cdon positively regulates the pathway. Here we show that in the developing zebrafish and chick optic vesicle, in which cdon and ptc1 are expressed with a complementary pattern, Cdon acts as a negative Hh signalling regulator. Cdon predominantly localizes to the basolateral side of neuroepithelial cells, promotes the enlargement of the neuroepithelial basal end-foot and traps Hh protein, thereby limiting its dispersion. This Ptc-independent function protects the retinal primordium from Hh activity, defines the stalk/retina boundary and thus the correct proximo-distal patterning of the eye.