After gastrulation, progenitor cells of the cardiac, visceral and body wall musculature arise at defined positions within the mesodermal layer of the Drosophila embryo. The regulatory mechanisms underlying this process of pattern formation are largely unknown, although ablation experiments carried out in other insects indicate that inductive influences from ectodermal cells have major roles in embryonic mesoderm differentiation. An early and important event in the regional subdivision of the mesoderm is the restriction of tinman expression to dorsal mesodermal cells. Genetic analysis has shown that this homeobox gene controls the formation of the visceral musculature and the heart from dorsal portions of the mesoderm. We now show that an inductive signal from dorsal ectodermal cells is required for activation of tinman in the underlying mesoderm and present evidence that Decapentaplegic (Dpp), a member of the transforming growth factor-beta superfamily, serves as a signalling molecule in this process. This demonstrates that the spatial expression of dpp in the ectoderm determines which cells of the mesoderm become competent to develop into visceral mesoderm and the heart.