In the third thoracic segment of Drosophila, wing development is suppressed by the homeotic selector gene Ultrabithorax (Ubx) in order to mediate haltere development. Previously, we have shown that Ubx represses dorsoventral (DV) signaling to specify haltere fate. Here we examine the mechanism of Ubx-mediated downregulation of DV signaling. We show that Wingless (Wg) and Vestigial (Vg) are differentially regulated in wing and haltere discs. In wing discs, although Vg expression in non-DV cells is dependent on DV boundary function of Wg, it maintains its expression by autoregulation. Thus, overexpression of Vg in non-DV cells can bypass the requirement for Wg signaling from the DV boundary. Ubx functions, at least, at two levels to repress Vestigial expression in non-DV cells of haltere discs. At the DV boundary, it functions downstream of Shaggy/GSK3 beta to enhance the degradation of Armadillo (Arm), which causes downregulation of Wg signaling. In non-DV cells, Ubx inhibits event(s) downstream of Arm, but upstream of Vg autoregulation. Repression of Vg at multiple levels appears to be crucial for Ubx-mediated specification of the haltere fate. Overexpression of Vg in haltere discs is enough to override Ubx function and cause haltere-to-wing homeotic transformations.