The role of protein localization along the apical-basal axis of polarized cells is difficult to investigate in vivo, partially due to lack of suitable tools. Here, we present the GrabFP system, a collection of four nanobody-based GFP-traps that localize to defined positions along the apical-basal axis. We show that the localization preference of the GrabFP traps can impose a novel localization on GFP-tagged target proteins and results in their controlled mislocalization. These new tools were used to mislocalize transmembrane and cytoplasmic GFP fusion proteins in the Drosophila wing disc epithelium and to investigate the effect of protein mislocalization. Furthermore, we used 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.