Links between genes involved in development, proliferation and apoptosis have been difficult to establish. In the Drosophila wing disc, the vestigial (vg) and the scalloped (sd) gene products dimerize to form a functional transcription factor. Ectopic expression of vg in other imaginal discs induces outgrowth and wing tissue specification. We investigated the role of the VG-SD dimer in proliferation and showed that vg antagonizes the effect of dacapo, the cyclin-cdk inhibitor. Moreover, ectopic vg drives cell cycle progression and in HeLa cultured cells, the VG-SD dimer induces cell proliferation per se. In Drosophila, ectopic vg induces expression of dE2F1 and its targets dRNR2 and string. In addition vg, but not dE2F1, interacts with and induces expression of dihydrofolate reductase (DHFR). Moreover, a decrease in VG or addition of aminopterin, a specific DHFR inhibitor, shift the dorso-ventral boundary cells of the disc to a cell death sensitive state that is correlated with reaper induction and DIAP1 downregulation. This indicates that vg in interaction with dE2F1 and DHFR is a critical player for both cell proliferation and cell survival in the presumptive wing margin area.