The Twisted Gastrulation (TSG) protein is one of five secreted proteins required to pattern the dorsal part of the early Drosophila embryo. Unlike the Decapentaplegic (DPP) protein that is required to pattern the entire dorsal half of the embryo, TSG is needed only to specify the fate of the dorsal midline cells. Here we have misexpressed the tsg gene with different promoters to address its mechanism of action and relationship to DPP. When expressed in a ventral stripe of cells, TSG protein can diffuse to the dorsalmost cells and can rescue the dorsal midline cells in tsg mutant embryos. Despite elevated levels that exceed that exceed those needed for biological activity, there was no change in dorsal midline or lateral cell fates under any conditions tested. We conclude that TSG does not modulate an activity gradient of DPP. Instead, it functions in a permissive rather than instructive role to elaborate cell fates along the dorsal midline after peak levels of DPP activity have 'primed' cells to respond to TSG. The interaction between TSG and DPP defines a novel type of combinatorial synergism.