The dorsal (dl) morphogen gradient initiates the formation of the mesoderm, neuroectoderm, and dorsal ectoderm by setting different limits of regulatory gene expression along the dorsoventral axis of the early Drosophila embryo. In this paper, we show that low affinity dl-binding sites restrict target gene expression to the ventralmost regions (presumptive mesoderm), where there are peak levels of dl, while high affinity sites permit expression in ventrolateral regions (mesoderm and mesectoderm) containing intermediate levels of the morphogen. Activation by low levels of dl in lateral regions (the presumptive neuroectoderm) depends on cooperative DNA binding interactions between dl and bHLH proteins. The snail repressor blocks this interaction and restricts expression to the neuroectoderm. We discuss how enhancers serve as templates to bring weakly interacting regulatory factors into close proximity so that they can function combinatorially to activate and repress transcription.