The adult Drosophila wing is formed by an epithelial sheet, which differentiates into two non-neural tissues, vein or intervein. A large number of genes, many of them encoding components of an EGF-receptor signaling pathway, have previously been shown to be required for differentiation of vein tissue. Much less is known about the molecular control of intervein differentiation. Here we report that the Drosophila homolog of the mammalian Serum Response Factor gene (DSRF), which encodes a MADS-box containing transcriptional regulator, is expressed in the future intervein tissue of wing imaginal discs. In adult flies carrying only one functional copy of the DSRF gene, additional vein tissue develops in the wing, indicating that DSRF is required to spatially restrict the formation of veins. In mitotic clones lacking DSRF, intervein tissue fails to differentiate and becomes vein-like in appearance. Genetic and molecular evidence demonstrates that DSRF is encoded by the blistered locus, which produces ectopic veins and blistered wings when mutant. Our results show that DSRF plays a dual role during wing differentiation. It acts in a dosage-dependent [correction of dosage-dependant] manner to suppress the formation of wing veins and is required cell-autonomously to promote the development of intervein cells. We propose that DSRF acts at a key step between regulatory genes that define the early positional values in the developing wing disc and the subsequent localized expression of intervein-specific structural genes.