Previous studies have shown that the segment polarity locus gooseberry, which contains two closely related transcripts gooseberry-proximal and gooseberry-distal, is required for proper development in both the epidermis and the central nervous system of Drosophila. In this study, the roles of the gooseberry proteins in the process of cell fate specification have been examined by generating two fly lines in which either gooseberry-distal or gooseberry-proximal expression is under the control of an hsp70 promoter. We have found that ectopic expression of either gooseberry protein causes cell fate transformations that are reciprocal to those of a gooseberry deletion mutant. Our results suggest that the gooseberry-distal protein is required for the specification of naked cuticle in the epidermis and specific neuroblasts in the central nervous system. These roles may reflect independent functions in neuroblasts and epidermal cells or a single function in the common ectodermal precursor cells. The gooseberry-proximal protein is also found in the same neuroblasts as gooseberry-distal and in the descendants of these cells.