In vertebrates, many cytokines and growth factors have been identified as activators of the JAK/STAT signaling pathway. In Drosophila, JAK and STAT molecules have been isolated, but no ligands or receptors capable of activating the pathway have been described. We have characterized the unpaired (upd) gene, which displays the same distinctive embryonic mutant defects as mutations in the Drosophila JAK (hopscotch) and STAT (stat92E) genes. Upd is a secreted protein, associated with the extracellular matrix, that activates the JAK pathway. We propose that Upd is a ligand that relies on JAK signaling to stimulate transcription of pair-rule genes in a segmentally restricted manner in the early Drosophila embryo.