Elongation of the Drosophila embryonic hindgut epithelium occurs by a process of oriented cell rearrangement requiring the genes drumstick (drm) and lines (lin). The elongating hindgut becomes subdivided into domains -- small intestine, large intestine and rectum -- each characterized by a specific pattern of gene expression dependent upon normal drm and lin function. We show that drm encodes an 81 amino acid (10 kDa) zinc finger protein that is a member of the Odd-skipped family. drm expression is localized to the developing midgut-hindgut junction and is required to establish the small intestine, while lin is broadly expressed throughout the gut primordium and represses small intestine fate. lin is epistatic to drm, suggesting a model in which localized expression of drm blocks lin activity, thereby allowing small intestine fate to be established. Further supporting this model, ectopic expression of Drm throughout the hindgut produces a lin phenotype. Biochemical and genetic data indicate that the first conserved zinc finger of Drm is essential for its function. We have thus defined a pathway in which a spatially localized zinc finger protein antagonizes a globally expressed protein, thereby leading to specification of a domain (the small intestine) necessary for oriented cell rearrangement.