wingless (wg) and its vertebrate homologues, the Wnt genes, play critical roles in the generation of embryonic pattern. In the developing Drosophila epidermis, wg is expressed in a single row of cells in each segment, but it influences cell identities in all rows of epidermal cells in the 10- to 12-cell-wide segment. Wg signaling promotes specification of two distinct aspects of the wild-type intrasegmental pattern: the diversity of denticle types present in the anterior denticle belt and the smooth or naked cuticle constituting the posterior surface of the segment. We have manipulated the expression of wild-type and mutant wg transgenes to explore the mechanism by which a single secreted signaling molecule can promote these distinctly different cell fates. We present evidence consistent with the idea that naked cuticle cell fate is specified by a cellular pathway distinct from the denticle diversity-generating pathway. Since these pathways are differentially activated by mutant Wg ligands, we propose that at least two discrete classes of receptor for Wg may exist, each transducing a different cellular response. We also find that broad Wg protein distribution across many cell diameters is required for the generation of denticle diversity, suggesting that intercellular transport of the Wg protein is an essential feature of pattern formation within the epidermal epithelium. Finally, we demonstrate that an 85 amino acid region not conserved in vertebrate Wnts is dispensable for Wg function and we discuss structural features of the Wingless protein required for its distinct biological activities.