Sonic hedgehog (Shh) is a pivotal morphogen in spinal cord development, orchestrating both ventral neural patterning and progenitor proliferation. How these distinct outcomes are specified has remained elusive. Here, we uncover that Shh is secreted via two biochemically and functionally distinct exosomal pools. A dense vesicle fraction, Shh-P150, drives Smoothened-Gli1 signalling to establish ventral progenitor identities, while a lighter pool, Shh-P450, activates a Smoothened-Gαi-dependent pathway that enhances progenitor proliferation without inducing ventral fate. We identify Rab7, a late endosomal regulator, as essential for Shh-P150 biogenesis and for notochord-mediated ventral neural patterning. Loss of Rab7 biases secretion toward the proliferative Shh-P450 pool and disrupts morphogenetic signalling. These findings establish exosomal packaging as a molecular switch that toggles Shh between its mitogenic and morphogenetic roles. By linking exosome biogenesis to developmental outcomes, our work reveals a novel mechanism that safeguards the balance between pattern formation and progenitor expansion during neural tube development, with implications for both developmental disorders and disease contexts where Shh signalling is misregulated.