The Drosophila gene Serrate (Ser) encodes a transmembrane protein with 14 epidermal growth factor--like repeats in its extracellular domain, which is required for the control of cell proliferation and pattern formation during wing development. Flies hetero- or homozygous for the dominant mutation SerD exhibit scalloping of the wing margin due to cell death during pupal stages. SerD is associated with an insertion of the transposable element Tirant in the 3' untranslated region of the gene, resulting in the truncation of the Ser RNA, thereby eliminating putative RNA degradation signals located further downstream. This leads to increased stability of Ser RNA and higher levels of Serrate protein. In wing discs of wild-type third instar larvae, the Serrate protein exhibits a complex expression pattern, including a strong stripe dorsal and a weaker stripe ventral to the prospective wing margin. Wing discs of SerD third instar larvae exhibit additional Serrate protein expression in the edge zone of the future wing margin, where it is normally not detectable. In these cells expression of wing margin specific genes, such as cut and wingless, is repressed. By using the yeast Gal4 system to induce locally restricted ectopic expression of Serrate in the edge zone of the prospective wing margin, we can reproduce all aspects of the SerD wing phenotype, that is, repression of wing margin-specific genes, scalloping of the wing margin and enhancement of the Notch haplo-insufficiency wing phenotype. This suggests that expression of the Serrate protein in the cells of the edge zone of the wing margin, where it is normally absent, interferes with the proper development of the margin.