puckered (puc) encodes a VH1-like phosphatase that down-regulates Jun kinase (JNK) activity during dorsal closure of the Drosophila embryo. We report a role for puc in follicle cell morphogenesis during oogenesis. puc mRNA accumulates preferentially in the centripetally migrating follicle cells and cells of the elongating dorsal appendages. Proper levels of Puc activity in the follicle cells are critical for the production of a normal egg: either reduced or increased Puc activity result in incomplete nurse cell dumping and aberrant dorsal appendages. Phenotypes associated with puc mutant follicle cells include altered DE-cadherin expression in the follicle cells and a failure of nurse cell dumping to coordinate with dorsal appendage elongation, leading to the formation of cup-shaped egg chambers. The JNK pathway target A251-lacZ showed cell-type-specific differences in its regulation by puc and by the small GTPase DRac1. puc mutant cells displayed region-specific ectopic expression of the A251-lacZ enhancer trap whereas overexpression of a transgene encoding Puc was sufficient to suppress lacZ expression in a cell autonomous fashion. Strikingly, decreased or increased puc function leads to a corresponding increase or decrease, respectively, of Fos and Jun protein levels. Taken together, these data indicate that puc modulates gene expression responses by antagonizing a Rho GTPase signal transduction pathway that stabilizes the AP-1 transcription factor. Consistent with this, overexpression of a dominant negative DRac1 resulted in lower levels of Fos/Jun.