The subdivision of the Drosophila wing imaginal disc into anterior and posterior compartments requires a transcriptional response to Hedgehog signaling. However, the genes regulated by Hedgehog signal transduction that mediate the segregation of anterior and posterior cells have not been identified. Here, we molecularly characterize the previously predicted gene cad99C and show that it is regulated by Hedgehog signaling. Cad99C encodes a transmembrane protein with a molecular weight of approximately 184 kDa that contains 11 cadherin repeats in its extracellular domain and a conserved type I PDZ-binding site at its C-terminus. The levels of cad99C RNA and protein are low throughout the wing imaginal disc. However, in the pouch region, these levels are elevated in a strip of anterior cells along the A/P boundary where the Hedgehog signal is transduced. Ectopic expression of Hedgehog, or the Hedgehog-regulated transcription factor Cubitus interruptus, induces high-level expression of Cad99C. Conversely, blocking Hedgehog signal transduction by either inactivating Smoothened or Cubitus interruptus reduces high-level Cad99C expression. Finally, by analyzing mutant clones of cells, we show that Cad99C is not essential for cell segregation at the A/P boundary. We conclude that cad99C is a novel Hedgehog-regulated gene encoding a member of the cadherin superfamily in Drosophila.