THE appendage primordia of Drosophila are subdivided into compartments(1-4) by the localized expression of transcription factors(5-7). Interaction between cells in adjacent compartments establishes organizing centres responsible for generating spatial pattern and promoting cell proliferation in the developing appendages(7-9). Localized expression of hedgehog (hh) in the posterior compartment of the leg : imaginal disc directs expression of wingless (wg) in ventral-anterior cells and decapentaplegic (dpp) in dorsal-anterior cells near the anterior-posterior compartment boundary(8); wg then acts to specify ventral cell fate(10-12) and to organize the dorsal-ventral axis of the leg(13,14). Interaction between wg-expressing ventral cells and dorsal cells near the anterior-posterior compartment boundary promotes axis formation in the leg(14,15). Here we show that the combined action of log-expressing cells in the ventral-anterior compartment and dpp-expressing cells in the dorsal-anterior compartment activates expression of Distal-less, a gene required for proximal-distal axis formation in the limbs. These results demonstrate that sequential interaction between anterior-posterior and dorsal-ventral compartments establishes the proximal-distal axis of the limbs.