Growing evidence involves chromatin structural flexibility in gene regulation during development. modulo is a dominant suppressor of position effect variegation, suggesting the participation of its product in the assembly of higher order chromatin structures. Here we report the patterns of modulo expression and regulation during embryogenesis, analyzed in correlation with phenotypical defects resulting from the amorphic mutation of the gene. Zygotic expression of modulo depends on the activity of genes which pattern the embryo along dorsoventral and anteroposterior axes and specify diversified morphogenesis, dorsal and the mesoderm-specific genes twist and snail direct modulo expression in the presumptive mesoderm. The homeotic genes Sex combs reduced and Ultrabithorax positively regulate the gene in the ectoderm of parasegment 2 and abdominal mesoderm, respectively, modulo mutants exhibit aberrant morphogenesis of tissues originating from those embryonic primordia which normally express the gene, but do not show defect in cell fate specification. We propose that down-stream of pattern-forming genes modulo controls, via chromatin structural changes, genes critical for the process of morphogenesis of several tissue types.