The segment polarity genes of Drosophila are required for intrasegmental organization, as revealed by their abnormal cuticular morphology in mutant embryos. Lesions in most of these loci result in a similar cuticular phenotype, in which the normally naked, posterior region of the segment is covered to varying degrees by ectopic denticles. A temperature-sensitive allele of armadillo, which allows us to vary the level of arm+ activity, generates this entire range of phenotypes, suggesting that these genes affect a common pathway. Previous work with a strong allele of arm revealed the locus to be cell-autonomous, in that small homozygous epidermal clones secreted denticles. We have conducted a similar clonal analysis at all levels of arm+ activity. This shows a differential tendency toward cell transformation and cell death within the segment. Antibodies to segmentation gene-fusion products show that the cell death is primarily in the most posterior region of the segment. We suggest that differential cell respecification, resulting in transformation or death, is involved in generating the segment polarity phenotype.