In Drosophila, the formation of the embryonic axes is initiated by Gurken, a transforming growth factor alpha signal from the oocyte to the posterior follicle cells, and an unknown polarising signal back to the oocyte. We report that Drosophila Merlin is specifically required only within the posterior follicle cells to initiate axis formation. Merlin mutants show defects in nuclear migration and mRNA localisation in the oocyte. Merlin is not required to specify posterior follicle cell identity in response to the Gurken signal from the oocyte, but is required for the unknown polarising signal back to the oocyte. Merlin is also required non-autonomously, only in follicle cells that have received the Gurken signal, to maintain cell polarity and limit proliferation, but is not required in embryos and larvae. These results are consistent with the fact that human Merlin is encoded by the gene for the tumour suppressor neurofibromatosis-2 and is a member of the Ezrin-Radixin-Moesin family of proteins that link actin to transmembrane proteins. We propose that Merlin acts in response to the Gurken signal by apically targeting the signal that initiates axis specification in the oocyte.