Extracellular signals can act at different threshold levels to elicit distinct transcriptional and cellular responses. Here, we examine the transcriptional regulation of the Wingless target gene Ultrabithorax (Ubx) in the embryonic midgut of Drosophila. Our previous work showed that Ubx transcription is stimulated in this tissue by Dpp and by low levels of Wingless signalling. We now find that high levels of Wingless signalling can repress Ubx transcription. The response sequence within the Ubx midgut enhancer required for this repression coincides with a motif required for transcriptional stimulation of Dpp, namely a tandem of binding sites for the Dpp-transducing protein, Mad. Indeed, Wingless-mediated repression depends on low levels of Dpp, although apparently not on Mad itself. In contrast, high levels of Dpp signalling antagonize Wingless-mediated repression. This suggests that transcriptional activation of Ubx is subject to competition between Dpp-activated Mad and another Smad whose function as a transcriptional repressor depends on high Wg signalling. Finally, we show that Wingless can repress its own expression via an autorepressive feedback loop that results in a change of the Wingless signalling profile during development.