Inductive signaling is of pivotal importance for developmental patterns to form. In Drosophila, the transfer of TGFbeta (Dpp) and Wnt (Wg) signaling information from the ectoderm to the underlying mesoderm induces cardiac-specific differentiation in the presence of Tinman, a mesoderm-specific homeobox transcription factor. We present evidence that the Gata transcription factor, Pannier, and its binding partner U-shaped, also a zinc-finger protein, cooperate in the process of heart development. Loss-of-function and germ layer-specific rescue experiments suggest that pannier provides an essential function in the mesoderm for initiation of cardiac-specific expression of tinman and for specification of the heart primordium. u-shaped also promotes heart development, but unlike pannier, only by maintaining tinman expression in the cardiogenic region. By contrast, pan-mesodermal overexpression of pannier ectopically expands tinman expression, whereas overexpression of u-shaped inhibits cardiogenesis. Both factors are also required for maintaining dpp expression after germ band retraction in the dorsal ectoderm. Thus, we propose that Pannier mediates as well as maintains the cardiogenic Dpp signal. In support, we find that manipulation of pannier activity in either germ layer affects cardiac specification, suggesting that its function is required in both the mesoderm and the ectoderm.