Acquisition of cell identity in plants relies strongly on positional information, hence cell-cell communication and inductive signalling are instrumental for developmental patterning. During Arabidopsis embryogenesis, an extra-embryonic cell is specified to become the founder cell of the primary root meristem, hypophysis, in response to signals from adjacent embryonic cells. The auxin-dependent transcription factor MONOPTEROS (MP) drives hypophysis specification by promoting transport of the hormone auxin from the embryo to the hypophysis precursor. However, auxin accumulation is not sufficient for hypophysis specification, indicating that additional MP-dependent signals are required. Here we describe the microarray-based isolation of MP target genes that mediate signalling from embryo to hypophysis. Of three direct transcriptional target genes, TARGET OF MP 5 (TMO5) and TMO7 encode basic helix-loop-helix (bHLH) transcription factors that are expressed in the hypophysis-adjacent embryo cells, and are required and partially sufficient for MP-dependent root initiation. Importantly, the small TMO7 transcription factor moves from its site of synthesis in the embryo to the hypophysis precursor, thus representing a novel MP-dependent intercellular signal in embryonic root specification.