Factors that determine the competence of cells to respond to extracellular cues are not well understood. We demonstrate that two HOM-C transcription factors have antagonistic roles in determining the ability of Caenorhabditis elegans vulval precursor cells (VPCs) to respond to the inductive signal from the anchor cell of the somatic gonad. The vulva develops from a subset of ectodermal vulval precursor cells distributed along the anteroposterior axis. Vulval patterning depends on both a localized inductive signal, the LIN-3 growth factor, and lateral signaling between induced VPCs. One HOM-C gene, the Antp homolog mab-5, is expressed in the posterior two VPCs. By examining the response of single VPCs to controlled doses of inductive signal in wild-type and in mab-5 mutant animals, we demonstrate that mab-5 reduces the competence of these two cells. Moreover, a gain-of-function allele of mab-5 that causes ectopic expression of MAB-5 in all VPCs reduces the sensitivity of all VPCs to inductive signal. Additional experiments suggest that another HOM-C gene, the Scr homolog lin-39, is required for VPCs in wild-type animals to respond to activation of inductive signal. Genetic epistasis tests are consistent with models in which lin-39 acts downstream of the RAS pathway to regulate response to inductive signal. We propose that the spatial pattern of HOM-C gene expression may enhance the precision of vulval fate patterning.