An induction process occurring between the mesodermal and the endodermal germ layers has recently been described in the regulation of the Drosophila homeotic gene labial (lab). We report here that proper spatial regulation of the Drosophila POU box gene pdm-1 products also involves interaction between these two germ layers. pdm-1 transcripts are initially present in both the anterior and the posterior endodermal midgut primordia. Upon fusion of the two primordia, transcripts disappear from two regions in the endoderm, a central domain and an anterior domain. The anterior repression domain of pdm-1 is independent of the expression of known homeotic genes and genes encoding secreted signalling molecules in the visceral mesoderm, both for its positioning and its repression. Repression in the central domain requires both the homeotic gene Ultrabithorax (Ubx) and the decapentaplegic (dpp) gene, which encodes a secreted protein. Both of these genes are also required for lab induction. However, the analysis of pdm-1 expression in various mutant backgrounds indicates that the regulation of lab and pdm-1 across germ layers is controlled by different genetic cascades. Our study indicates that dpp is not the signal that dictates central pdm-1 repression across germ layers and suggests that in the same midgut region, different signalling pathways result in the differential activation or repression of potential transcription factors.