During development, extracellular signaling molecules interact with intracellular gene networks to control the specification, pattern and size of organs. One such signaling molecule is Hedgehog (Hh). Hh is known to act as a morphogen, instructing different fates depending on the distance to its source. However, how Hh, when signaling across a cell field, impacts organ-specific transcriptional networks is still poorly understood. Here, we investigate this issue during the development of the Drosophila ocellar complex. The development of this sensory structure, which is composed of three simple eyes (or ocelli) located at the vertices of a triangular patch of cuticle on the dorsal head, depends on Hh signaling and on the definition of three domains: two areas of eya and so expression--the prospective anterior and posterior ocelli--and the intervening interocellar domain. Our results highlight the role of the homeodomain transcription factor engrailed (en) both as a target and as a transcriptional repressor of hh signaling in the prospective interocellar region. Furthermore, we identify a requirement for the Notch pathway in the establishment of en maintenance in a Hh-independent manner. Therefore, hh signals transiently during the specification of the interocellar domain, with en being required here for hh signaling attenuation. Computational analysis further suggests that this network design confers robustness to signaling noise and constrains phenotypic variation. In summary, using genetics and modeling we have expanded the ocellar gene network to explain how the interaction between the Hh gradient and this gene network results in the generation of stable mutually exclusive gene expression domains. In addition, we discuss some general implications our model may have in some Hh-driven gene networks.