Analysis of the expression patterns of two genes encoding extracellular matrix proteins shows there to be an unexpectedly complex pattern of prestalk cell differentiation and movement during the morphogenesis of Dictyostelium. The organism employs both cell sorting and positional differentiation to generate a patterned structure but these two mechanisms are used at different times during development. During slug formation prestalk cells arise at scattered positions within the aggregate and then move to its apex to form the tip. In contrast, during culmination, stalk cell differentiation occurs in a positionally localized manner at the entrance to the stalk tube. Two interacting signalling pathways regulate the differentiation of prestalk and stalk cells. Prestalk cell differentiation is induced by DIF, a chlorinated hexaphenone, and a repression mechanism prevents DIF acting to induce premature stalk cell differentiation during slug migration. At culmination intracellular cAMP levels rise, the cAMP dependent protein kinase (PKA) is activated and the block to stalk cell differentiation is lifted. Activation of PKA is also necessary in order that prestalk cells move to the entrance of the stalk tube at culmination. Thus, in Dictyostelium, PKA plays a role both in the regulation of cellular differentiation and in morphogenetic cell movement.