The patterns of homeotic gene expression in the Drosophila midgut visceral mesoderm are instrumental in several morphogenetic events, including the formation of the gastric caeca and the positioning of the three midgut constrictions. We demonstrate that a potent regulator of homeotic gene expression in the visceral mesoderm is the secreted growth factor-like molecule encoded by the decapentaplegic (dpp) gene. Ectopic dpp in the visceral mesoderm caused changes in the gene expression of Sex combs reduced, Antennapedia, Ultrabithorax (Ubx), and abdominal-A (abd-A) and disrupted the formation of the gastric caeca and the first and third midgut constrictions. Ectopic dpp also induced expression of teashirt, wingless (wg) and the endogenous dpp gene in the visceral mesoderm and enhanced labial expression in the adjacent endoderm. The patterns of gene expression and the formation of the second midgut constriction in the presence of ectopic dpp are most consistent with a dpp-induced transformation of virtually the entire midgut to cell fates normally seen only in the parasegment (ps)7 and ps8 regions of the midgut. We conclude that dpp is a primary signal in maintaining Ubx expression in the visceral mesoderm in a pattern different from Ubx expression in the embryonic ectoderm and in providing a cell-cell communication mechanism by which Ubx expression influences gene expression across germlayers and across the ps7 to ps8 parasegment boundary in the visceral mesoderm.