The decapentaplegic (dpp) gene influences many developmental events in Drosophila melanogaster. We have been analyzing dpp expression in two groups of dorsal ectoderm cells at the posterior end of the embryo, in abdominal segment 8 and the telson. These dpp-expressing cells become tracheal cells in the posterior-most branches of the tracheal system (Dorsal Branch10, Spiracular Branch10, and the Posterior Spiracle). These branches are not identified by reagents typically used in analyses of tracheal development, suggesting that dpp expression confers a distinct identity upon posterior tracheal cells. We have determined that dpp posterior ectoderm expression begins during germ band extension and continues throughout development. We have isolated the sequences responsible for these aspects of dpp expression in a reporter gene. We have determined that an unconventional form of Wingless (Wg) signaling, Dpp signaling, and the transcriptional coactivator Nejire (CBP/p300) are required for the initiation and maintenance of dpp expression in the posterior-most branches of the tracheal system. Our data suggest a model for the integration of Wg and Dpp signals that may be applicable to branching morphogenesis in other developmental systems.