The segment polarity genes engrailed and wingless are expressed in neighboring stripes of cells on opposite sides of the Drosophila parasegment boundary. Each gene is mutually required for maintenance of the other's expression; continued expression of both also requires several other segment polarity genes. We show here that one such gene, hedgehog, encodes a protein targeted to the secretory pathway and is expressed coincidently with engrailed in embryos and in imaginal discs; maintenance of the hedgehog expression pattern is itself dependent upon other segment polarity genes including engrailed and wingless. Expression of hedgehog thus functions in, and is sensitive to, positional signaling. These properties are consistent with the non-cell autonomous requirement for hedgehog in cuticular patterning and in maintenance of wingless expression.