During early embryogenesis in Drosophila, caudal mRNA is distributed as a gradient with its highest level at the posterior of the embryo. This suggests that the Caudal homeodomain transcription factor might play a role in establishing the posterior domains of the embryo that undergo gastrulation and give rise to the posterior gut. By generating embryos lacking both the maternal and zygotic mRNA contribution, we show that caudal is essential for invagination of the hindgut primordium and for further specification and development of the hindgut. These effects are achieved by the function of caudal in activating different target genes, namely folded gastrulation, which is required for invagination of the posterior gut primordium, and fork head and wingless, which are required to promote development of the internalized hindgut primordium. caudal is not sufficient for hindgut gastrulation and development, however, as it does not play a significant role in activating expression of the genes tailless, huckebein, brachyenteron and bowel. We argue that caudal and other genes expressed at the posterior of the Drosophila embryo (fork head, brachyenteron and wingless) constitute a conserved constellation of genes that plays a required role in gastrulation and gut development.