Inactivation of either the secreted protein Wingless (Wg) or the forkhead domain transcription factor Sloppy Paired (Slp) has been shown to produce similar effects in the developing Drosophila embryo. In the ectoderm, both gene products are required for the formation of the segmental portions marked by naked cuticle. In the mesoderm, Wg and Slp activities are crucial for the suppression of bagpipe (bap), and hence visceral mesoderm formation, and the promotion of somatic muscle and heart formation within the anterior portion of each parasegment. In this report, we show that, during these developmental processes, wg and slp act in a common pathway in which slp serves as a direct target of Wg signals that mediates Wg effects in both germ layers. We present evidence that the induction of slp by Wg involves binding of the Wg effector Pangolin (Drosophila Lef-1/TCF) to multiple binding sites within a Wg-responsive enhancer that is located in 5' flanking regions of the slp1 gene. Based upon our genetic and molecular analysis, we conclude that Wg signaling induces striped expression of Slp in the mesoderm. Mesodermal Slp is then sufficient to abrogate the induction of bagpipe by Dpp/Tinman, which explains the periodic arrangement of trunk visceral mesoderm primordia in wild type embryos. Conversely, mesodermal Slp is positively required, although not sufficient, for the specification of somatic muscle and heart progenitors. We propose that Wg-induced slp provides striped mesodermal domains with the competence to respond to subsequent slp-independent Wg signals that induce somatic muscle and heart progenitors. We also propose that in wg-expressing ectodermal cells, slp is an integral component in an autocrine feedback loop of Wg signaling.