Localised activation of the Ras/Raf pathway by Epidermal Growth Factor Receptor (EGFR) signalling specifies the formation of veins in the Drosophila wing. However, little is known about how the EGFR signal regulates transcriptional responses during the vein/intervein cell fate decision. We provide evidence that EGFR signalling induces expression of vein-specific genes by inhibiting the Capicua (Cic) HMG-box repressor, a known regulator of embryonic body patterning. Lack of Cic function causes ectopic expression of EGFR targets such as argos, ventral veinless and decapentaplegic and leads to formation of extra vein tissue. In vein cells, EGFR signalling downregulates Cic protein levels in the nucleus and relieves repression of vein-specific genes, whereas intervein cells maintain high levels of Cic throughout larval and pupal development, repressing the expression of vein-specific genes and allowing intervein differentiation. However, regulation of some EGFR targets such as rhomboid appears not to be under direct control of Cic, suggesting that EGFR signalling branches out in the nucleus and controls different targets via distinct mediator factors. Our results support the idea that localised inactivation of transcriptional repressors such as Cic is a rather general mechanism for regulation of target gene expression by the Ras/Raf pathway.