Previous analyses of the decapentaplegic (dpp) gene in Drosophila melanogaster have suggested that its product, a polypeptide of the transforming growth factor-beta family of secreted factors, acts at the level of intercellular communication to control several events in spatial pattern formation. In this report, we use clonal analysis to demonstrate a localized requirement for wild-type dpp expression along the anterior-posterior (A/P) compartment boundary of the developing wing primordium. Clonal analysis reveals that normal wing blade development is solely dependent on dpp+ function in those anterior compartment cells that border the anterior-posterior (A/P) compartment boundary of the wing imaginal disk. Conversely, the wing blade will not develop if these boundary cells lack dpp activity. The localized requirement for dpp coincides with the spatial distribution of dpp transcripts, which accumulate in a stripe of cells at or near the known A/P compartment boundary of the wing imaginal disk. Thus, only a small subset of the cells that normally comprise the wing must express dpp to permit development of the entire structure. We propose that this localized expression of dpp is essential to proximal-distal appendage development. We discuss the possibility that dpp expression serves as a landmark for establishing and/or maintaining positional information in imaginal disks.