To form a gonad, germ cells (GCs) and somatic gonadal precursor cells (SGPs) must migrate to the correct location in the developing embryo and establish the cell-cell interactions necessary to create proper gonad architecture. During gonad morphogenesis, SGPs send out cellular extensions to ensheath the individual GCs and promote their development. We have identified mutations in the raw gene that result in a failure of the SGPs to ensheath the GCs, leading to defects in GC development. Using genetic analysis and gene expression studies, we find that Raw negatively regulates JNK signaling during gonad morphogenesis, and increased JNK signaling is sufficient to cause ensheathment defects. In particular, Raw functions upstream of the Drosophila Jun-related transcription factor to regulate its subcellular localization. Since JNK signaling regulates cell adhesion during the morphogenesis of many tissues, we examined the relationship between raw and the genes encoding Drosophila E-cadherin and β-catenin, which function together in cell adhesion. We find that loss of DE-cadherin strongly enhances the raw mutant gonad phenotype, while increasing DE-cadherin function rescues this phenotype. Further, loss of raw results in mislocalization of β-catenin away from the cell surface. Therefore, cadherin-based cell adhesion, likely at the level of β-catenin, is a primary mechanism by which Raw regulates germline-soma interaction.