Morphogen gradients impart positional information to cells in a homogenous tissue field. Fgf8a, a highly conserved growth factor, has been proposed to act as a morphogen during zebrafish gastrulation. However, technical limitations have so far prevented direct visualization of the endogenous Fgf8a gradient and confirmation of its morphogenic activity. Here, we monitored Fgf8a propagation in the developing neural plate using a CRISPR/Cas9-mediated EGFP knock-in at the endogenous fgf8a locus. By combining sensitive imaging platforms with single-molecule Fluorescence Correlation Spectroscopy (FCS), we demonstrate that Fgf8a, produced at the embryonic margin, propagates by free diffusion through the extracellular space and forms a graded distribution towards the animal pole. Overlaying the Fgf8a gradient curve with expression profiles of its downstream targets determines the precise input-output relationship of Fgf8a mediated patterning. Manipulation of the Fgf8a input alters the signaling outcome, thereby establishing Fgf8a as a bona fide morphogen during zebrafish gastrulation. Furthermore, using diffusion-hindered versions of Fgf8a, we demonstrate that extracellular diffusion of the protein from the source is critical for it to achieve its morphogenic potential.