homothorax (hth) is a Drosophila member of the Meis family of homeobox genes. hth function is required for the nuclear localization of the Hox cofactor Extradenticle (EXD). We show here that there is also a post-transcriptional control of HTH by exd: exd activity is required for the apparent stability of the HTH protein. In leg imaginal discs, hth expression is limited to the domain of exd function and this domain is complementary to the domain in which the Wingless (WG) and Decapentaplegic (DPP) signals are active. We demonstrate that WG and DPP act together through their targets Distal-less (Dll) and dachshund (dac) to restrict hth expression, and therefore EXD's nuclear localization, to the most proximal regions of the leg disc. Furthermore, there is a reciprocal repression exerted by HTH on these and other DPP and WG downstream targets that restricts their expression to non-hth-expressing cells. Thus, there exists in the leg disc a set of mutually antagonistic interactions between proximal cells, which we define as those that express hth, and distal cells, or those that do not express hth. In addition, we show that dac negatively regulates Dll. We suggest that these antagonistic relationships help to convert the WG and DPP activity gradients into discreet domains of gene expression along the proximodistal axis.