During the final stages of embryogenesis, the Drosophila embryo exhibits a dorsal hole covered by a simple epithelium of large cells termed the amnioserosa (AS). Dorsal closure is the process whereby this hole is closed through the coordination of cellular activities within both the AS and the epidermis. Genetic analysis has shown that signalling through Jun N-terminal Kinase (JNK) and Decapentaplegic (Dpp), a Drosophila member of the BMP/TGF-beta family of secreted factors, controls these activities. JNK activates the expression of dpp in the dorsal-most epidermal cells, and subsequently Dpp acts as a secreted signal to control the elongation of lateral epidermis. Our analysis shows that Dpp function not only affects the epidermal cells, but also the AS. Embryos defective in Dpp signalling display defects in AS cell shape changes, specifically in the reduction of their apical surface areas, leading to defective AS contraction. Our data also demonstrate that Dpp regulates adhesion between epidermis and AS, and mediates expression of the transcription factor U-shaped in a gradient across both the AS and the epidermis. In summary, we show that Dpp plays a crucial role in coordinating the activity of the AS and its interactions with the LE cells during dorsal closure.