We have initiated an analysis of protein kinase A (PKA) in Drosophila using transgenic techniques to modulate PKA activity in specific tissues during development. We have constructed GAL4/UAS-regulated transgenes in active and mutant forms that encode PKAc, the catalytic subunit of PKA, and PKI(1-31), a competitive inhibitor of PKAc. We present evidence that the wild-type transgenes are active and summarize the phenotypes produced by a number of GAL4 enhancer-detector strains. We compare the effects of transgenes encoding PKI(1-31) with those encoding PKAr*, a mutant regulatory subunit that constitutively inhibits PKAc because of its inability to bind cyclic AMP. Both inhibitors block larval growth, but only PKAr* alters pattern formation by activating the Hedgehog signaling pathway. Therefore, transgenic PKI(1-31) should provide a tool to investigate the role of PKAc in larval growth regulation without concomitant changes in pattern formation. The different effects of PKI(1-31) and PKAr* suggest two distinct roles, cytoplasmic and nuclear, for PKAc in Hedgehog signal transduction. Alternatively, PKAr* may target proteins other than PKAc, suggesting a role for free PKAr in signal transduction, a role inhibited by PKAc in reversal of the classical relationship of these subunits.