During development of tubular networks such as the mammalian vascular system, the kidney and the Drosophila tracheal system, epithelial tubes must fuse to each other to form a continuous network. Little is known of the cellular mechanisms or molecular control of epithelial tube fusion. We describe the cellular dynamics of a tracheal fusion event in Drosophila and identify a gene regulatory hierarchy that controls this extraordinary process. A tracheal cell located at the developing fusion point expresses a sequence of specific markers as it grows out and contacts a similar cell from another tube; the two cells adhere and form an intercellular junction, and they become doughnut-shaped cells with the lumen passing through them. The early fusion marker Fusion-1 is identified as the escargot gene. It lies near the top of the regulatory hierarchy, activating the expression of later fusion markers and repressing genes that promote branching. Ectopic expression of escargot activates the fusion process and suppresses branching throughout the tracheal system, leading to ectopic tracheal connections that resemble certain arteriovenous malformations in humans. This establishes a simple genetic system to study fusion of epithelial tubes.