We report an induction process occurring between two germ layers in the Drosophila embryo that involves a cascade of five interacting genes. Two of these, Ultrabithorax and abdominal-A, encode nuclear homeobox proteins; each of them is expressed in one of two adjacent parasegments in the visceral mesoderm and directs expression in its parasegment of a separate target gene, decapentaplegic in parasegment 7 and wingless in parasegment 8. The activity of both target genes is required for normal expression of another homeotic gene, labial, in cells of the adhering midgut epithelium. Their products are putative extracellular proteins, which presumably act as signals between the two germ layers. Positional instruction of this kind may be needed since the endoderm, unlike the mesoderm, appears unsegmented at first as it originates from two primordia near the embryonic poles, outside the realm of segmentation genes.