The induction of different cell fates along the dorsoventral axis of the Drosophila embryo requires a graded activity of the EGF receptor tyrosine kinase (DER). Here we have identified primary and secondary target genes of DER, which mediate the determination of discrete ventral cell fates. High levels of DER activation in the ventralmost cells trigger expression of the transcription factors encoded by ventral nervous system defective (vnd) and pointed P1 (pntPl). Concomitant with the induction of pntP1, high levels of DER activity lead to inactivation of the Yan protein, a transcriptional repressor of Pointed-target genes. These two antagonizing transcription factors subsequently control the expression of secondary target genes such as otd, argos and tartan. The simultaneous effects of the DER pathway on pntP1 induction and Yan inactivation may contribute to the definition of the border of the ventralmost cell fates.