The endoderm of Drosophila is patterned during embryogenesis by an inductive cascade emanating from the adhering mesoderm. An immediate-early endodermal target gene of this induction is Dfos whose expression is upregulated in the middle midgut by Dpp signalling. Previous evidence based on a dominant-negative Dfos construct indicated that Dfos may cooperate with Dpp signalling to induce the HOX gene labial, the ultimate target gene of the inductive cascade. Here, we examine kayak mutants that lack Dfos to establish that Dfos is indeed required for labial induction. We provide evidence that Dfos acts through a CRE-like sequence, previously identified to be a target for signalling by Dpp and by the Epidermal growth factor receptor (Egfr) in the embryonic midgut. We show that Dfos expression is stimulated by Egfr signalling. Finally, we find that Dfos function is required for its own upregulation. Thus, endoderm induction is based on at least four tiers of positive autoregulatory feedback loops.