The BMP-related ligand Decapentaplegic (Dpp) has a well-characterized role in pattern formation during Drosophila embryogenesis and in larval development. Previous work has shown that transcription of Dpp-responsive genes requires the activity of the BMP-specific Smad, Mothers against dpp (Mad). In this study we investigated the role of the zinc finger transcription factor Schnurri (Shn) in mediating the nuclear response to Dpp during adult patterning. Using clonal analysis, we show that wing imaginal disc cells mutant for shn fail to transcribe the genes spalt, optomotor blind, vestigial, and Dad, that are known to be induced by dpp signaling. shn clones also ectopically express brinker, a gene that is downregulated in response to dpp, thus implicating Shn in both activation and repression of Dpp target genes. We demonstrate that loss of shn activity affects anterior-posterior patterning and cell proliferation in the wing blade, in a manner that reflects the graded requirement for Dpp in these processes. Furthermore, we find that shn is expressed in the pupal wing and plays a distinct role in mediating dpp-dependent vein differentiation at this stage. The absence of shn activity results in defects that are similar in nature and severity to those caused by elimination of Mad, suggesting that Shn has an essential role in dpp signal transduction in the developing wing. Our data are consistent with a model in which Shn acts as a cofactor for Mad.