Spalt and Spalt-related encode conserved Zn-finger proteins that mediate the function of the TGF-beta molecule Decapentaplegic during the positioning of veins in the Drosophila wing. Here we show that Spalt and Spalt-related regulate the vein-specific expression of the transcription factors of the knirps and iroquois gene complexes, delimiting their domains of expression in the wing pouch. The effects of spalt/spalt-related mutations on knirps and iroquois expression are cell-autonomous, suggesting that they could be direct. The regulation of iroquois involves transcriptional repression by Spalt and Spalt-related, whereas the regulation of knirps involves a combination of transcriptional activation and repression mediated by the same genes. We suggest that the regulation of the iroquois and knirps gene complexes by Spalt and Spalt-related translates the Decapentaplegic morphogenetic gradient into precisely spaced pattern elements.