Polycomb group (PcG) proteins form conserved regulatory complexes that modify chromatin to repress transcription. Here, we report genome-wide binding profiles of PhoRC, the Drosophila PcG protein complex containing the DNA-binding factor Pho/dYY1 and dSfmbt. PhoRC constitutively occupies short Polycomb response elements (PREs) of a large set of developmental regulator genes in both embryos and larvae. The majority of these PREs are co-occupied by the PcG complexes PRC1 and PRC2. Analysis of PcG mutants shows that the PcG system represses genes required for anteroposterior, dorsoventral, and proximodistal patterning of imaginal discs and that it also represses cell cycle regulator genes. Many of these genes are regulated in a dynamic manner, and our results suggest that the PcG system restricts signaling-mediated activation of target genes to appropriate cells. Analysis of cell cycle regulators indicates that the PcG system also dynamically modulates the expression levels of certain genes, providing a possible explanation for the tumor phenotype of PcG mutants.