The Drosophila homologue of the human TEF-1 gene, scalloped (sd), is required for wing development. The SD protein forms part of a transcriptional activation complex with the protein encoded by vestigial (vg) that, in turn, activates target genes important for wing formation. One sd function involves a regulatory feedback loop with vg and wingless (wg) that is essential in this process. The dorsal-ventral (D/V) margin-specific expression of wg is lost in sd mutant wing discs while the hinge-specific expression appears normal. In the context of wing development, a VG::sdTEA domain fusion produces a protein that mimics the wild-type SD/VG complex and restores the D/V boundary-specific expression of wg in a sd mutant background. Further, targeted expression of wg at the D/V boundary in the wing disc was able to partially rescue the sd mutant phenotype. This infers that sd could function in either the maintenance or induction of wg at the D/V border. Another functional role for sd is the establishment of sensory organ precursors (SOP) of the peripheral nervous system at the wing margin. Thus, the relationship between sd and senseless (sens) in the development of these cells is also examined, and it appears that sd must be functional for proper sens expression, and ultimately, for sensory organ precursor development.