The hedgehog gene product, secreted from engrailed-expressing neuroectoderm, is required for the formation of post-S1 neuroblasts in rows 2, 5 and 6. The hedgehog protein functions not only as a paracrine but also as an autocrine factor and its transient action on the neuroectoderm 1-2 hours (at 18 degrees C) prior to neuroblast delamination is necessary and sufficient to form normal neuroblasts. In contrast to epidermal development, hedgehog expression required for neuroblast formation is regulated by neither engrailed nor wingless. hedgehog and wingless bestow composite positional cues on the neuroectodermal regions for S2-S4 neuroblasts at virtually the same time and, consequently, post-S1 neuroblasts in different rows can acquire different positional values along the anterior-posterior axis. The average number of proneural cells for each of three eagle-positive S4-S5 neuroblasts was found to be 5-9, the same for S1 NBs. As with wingless (Chu-LaGraff et al., Neuron 15, 1041-1051, 1995), huckebein expression in putative proneural regions for certain post-S1 neuroblasts is under the control of hedgehog. hedgehog and wingless are involved in separate, parallel pathways and loss of either is compensated for by the other in NB 7-3 formation. NBs 6-4 and 7-3, arising from the engrailed domain, were also found to be specified by the differential expression of two homeobox genes, gooseberry-distal and engrailed.