Investigating the role of protein localization is crucial to understand protein function in cells or tissues. However, in many cases the role of different subcellular fractions of given proteins along the apical-basal axis of polarized cells has not been investigated in vivo, partially due to lack of suitable tools. Here, we present the GrabFP system, a nanobody-based toolbox to modify the localization and the dispersal of GFP-tagged proteins along the apical-basal axis of polarized cells. We show that the GrabFP system is an effective and easy-to-implement tool to mislocalize cytosolic and transmembrane GFP-tagged proteins and thereby functionally investigate protein localization along the apical-basal axis. We use the GrabFP system as a tool to study the extracellular dispersal of the Decapentaplegic (Dpp) protein and show that the Dpp gradient forming in the lateral plane of the Drosophila wing disc epithelium is essential for patterning of the wing imaginal disc.