During Drosophila embryogenesis homeotic genes control the developmental diversification of body structures. The genes probably coordinate the expression of as yet unidentified target genes that carry out cell differentiation processes. At least four homeotic genes expressed in the visceral mesoderm are required for midgut morphogenesis. In addition, two growth factor homologs are expressed in specific regions of the visceral mesoderm surrounding the midgut epithelium. One of these, decapentaplegic (dpp), is a member of the transforming growth factor beta (TGF-beta) family; the other, wingless (wg), is a relative of the mammalian proto-oncogene int-1. Here we show that the spatially restricted expression of dpp in the visceral mesoderm is regulated by the homeotic genes Ubx and abd-A. Ubx is required for the expression of dpp while abd-A represses dpp. One consequence of dpp expression is the induction of labial (lab) in the underlying endoderm cells. In addition, abd-A function is required for the expression of wg in the visceral mesoderm posterior to the dpp-expressing cells. The two growth factor genes therefore are excellent candidates for target genes that are directly regulated by the homeotic genes.