Surgically fragmented Drosophila appendage primordia (imaginal discs) engage in wound healing and pattern regulation during short periods of in vivo culture. Prothoracic leg disc fragments possess exceptional regulative capacity, highlighted by the ability of anterior cells to convert to posterior identity and establish a novel posterior compartment. This anterior/posterior conversion violates developmental lineage restrictions essential for normal growth and patterning of the disc, and thus provides an ideal model for understanding how cells change fate during epimorphic pattern regulation. Here we present evidence that the secreted signal encoded by hedgehog directs anterior/posterior conversion by activating the posterior-specific transcription factor engrailed in regulating anterior cells. In the absence of hedgehog activity, prothoracic leg disc fragments fail to undergo anterior/posterior conversion, but can still regenerate missing anterior pattern elements. We suggest that hedgehog-independent regeneration within the anterior compartment (termed integration) is mediated by the positional cues encoded by wingless and decapentaplegic. Taken together, our results provide a novel mechanistic interpretation of imaginal disc pattern regulation and permit speculation that similar mechanisms could govern appendage regeneration in other organisms.