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During forebrain development, LRP2 promotes morphogen signaling as an auxiliary SHH receptor. However, in the developing retina, LRP2 assumes the opposing function, mediating endocytic clearance of SHH and antagonizing morphogen action. LRP2-mediated clearance prevents spread of SHH activity from the central retina into the retinal margin to protect quiescent progenitor cells in this niche from mitogenic stimuli. Loss of LRP2 in mice increases the sensitivity of the retinal margin for SHH, causing expansion of the retinal progenitor cell pool and hyperproliferation of this tissue. Our findings document the ability of LRP2 to act, in a context-dependent manner, as activator or inhibitor of the SHH pathway. Our current findings uncovered LRP2 activity as the molecular mechanism imposing quiescence of the retinal margin in the mammalian eye and suggest SHH-induced proliferation of the retinal margin as cause of the large eye phenotype observed in mouse models and patients with LRP2 defects.