INTERACTION between distinctly specified cells in adjacent compartments establishes organizing centres that control growth and specify cell fate in the developing limbs of Drosophila^1–5. Localized expression of the secreted Hedgehog protein (Hh) by cells in the posterior compartment^6–8 induces expression of the secreted signalling molecules decapentaplegic (dpp) or wingless (wg) in nearby anterior cells^2,3. wg and dpp in turn organize spatial pattern in the wing and leg imaginal discs^2,4,9. The Hh signal is thought to act by antagonizing the ability of the patched (ptc) gene product to repress wg and dpp expression^10–14. Here we present evidence that removing activity of the gene encoding cyclic AMP-dependent protein kinase A (pka) is functionally equivalent to removing ptc activity or to providing cells with the Hh signal. These findings suggest that cyclic AMP-dependent protein kinase A is a component of the signal transduction pathway through which Hh and Ptc direct localized expression of dpp (or wg) and establish the compartment boundary organizer.