In Drosophila, as in mammals, epidermal differentiation is controlled by signalling cascades that include Wnt proteins and the ovo/shavenbaby (svb) family of zinc-finger transcription factors. Ovo/svb is a complex gene with two genetic functions corresponding to separate control regions: ovo is required for female germline development and svb for epidermal morphogenesis. In the Drosophila embryo, the ventral epidermis consists of the segmental alternance of two major cell types that produce either naked cuticle or cytoplasmic extrusions known as denticles. Wingless signalling specifies smooth cells that produce naked cuticle, whereas the activation of the Drosophila epidermal growth factor (EGF) receptor (DER) leads to the production of denticles. Here we show that expression of the ovo/svb gene controls the choice between these cell fates. We find that svb is a key selector gene that, cell autonomously, directs cytoskeletal modifications producing the denticle. The DER pathway promotes denticle formation by activating svb expression. Conversely, Wingless promotes the smooth cell fate through the transcriptional repression of svb by the bipartite nuclear factor Armadillo/dTcf. Our data indicate that transcriptional regulation of svb integrates inputs from the Wingless and DER pathways and controls epidermal differentiation.