Shortly after their formation, somites of vertebrate embryos differentiate along the dorsoventral axis into sclerotome, myotome and dermomyotome. The dermomyotome is then patterned along its mediolateral axis into medial, central and lateral compartments, which contain progenitors of epaxial muscle, dermis and hypaxial muscle, respectively. Here, we used Wnt-11 as a molecular marker for the medial compartment of dermomyotome (the ‘medial lip’) to demonstrate that BMP in the dorsal neural tube indirectly induces formation of the medial lip by up-regulating Wnt-1 and Wnt-3a (but not Wnt-4) expression in the neural tube. Noggin in the dorsal somite may inhibit the direct action of BMP on this tissue. Wnt-11 induction is antagonized by Sonic Hedgehog, secreted by the notochord and the floor plate. Together, our results show that the coordinated actions of the dorsal neural tube (via BMP and Wnts), the ventral neural tube/notochord (via Shh) and the somite itself (via noggin) mediates patterning of the dorsal compartment of the somite.