Genetic studies show that intercellular signalling is involved in key steps in Drosophila melanogaster development, but it has not previously been possible to investigate these processes in simplified in vitro systems. Analysis of engrailed (en) and wingless (wg) and other segment polarity genes suggests that two or more intercellular signalling processes may be involved in intrasegmental patterning. Expression of en and wg begins about three hours after egg laying, in adjacent rows of cells in the posterior half of each segmental primordium. In wg- embryos and in conditional mutants in which wg function is inactivated during a critical period between three and five hours after egg laying, early en expression begins normally but then disappears within several hours. The wg gene encodes a protein highly similar to the product of the mouse Wnt-1 proto-oncogene, a secreted glycoprotein; wg protein is proposed to function as an extracellular signal, maintaining en expression and activating other molecular and morphogenetic processes in nearby cells. Several lines of evidence support the model, including the secretion of wg protein in the embryo, genetic mosaic experiments and cell lineage studies. We tested this model using purified embryonic cells isolated by whole animal cell sorting, and validated three key predictions: (1) when en-expressing cells from early embryos are grown alone in culture, they rapidly and selectively lose en expression; (2) purified wg-expressing cells provide a locally active signal that prevents this loss; (3) heterologous cells engineered to express wg also show signalling activity, indicating that wg protein alone, or in conjunction with more generally expressed factors, is the signal.