Polycomb group (PcG) genes maintain cell identities during development in insects and mammals and their products are required in many developmental pathways. These include limb morphogenesis in Drosophila melanogaster, since PcG genes interact with identity and pattern specifying genes in imaginal discs and clones of polyhomeotic (ph) null cells induce abnormal limb patterning. Such clones are associated with ectopic expression of engrailed, hedgehog, patched, cubitus interruptus and decapentaplegic, in a compartment specific manner. Our results also reveal negative engrailed regulation by ph in both disc compartments: ph silences engrailed in anterior cells and maintains the level of engrailed expression in posterior ones. We suggest that PcG targets are not exclusively regulated by an on/off mechanism, but that the PcG also exerts negative transcriptional control on active genes.