Drosophila pebble (pbl) encodes a Rho-family GTP exchange factor (GEF) required for cytokinesis. The accumulation of high levels of PBL protein during interphase and the developmentally regulated expression of pbl in mesodermal tissues suggested that the primary cytokinetic mutant phenotype might be masking other roles. Using various muscle differentiation markers, we found that Even skipped (EVE) expression in the dorsal mesoderm is greatly reduced in pbl mutant embryos. EVE expression in the dorsalmost mesodermal cells is induced in response to DPP secreted by the dorsal epidermal cells. Further analysis revealed that this phenotype is likely to be a consequence of an earlier defect. pbl mutant mesodermal cells fail to undergo the normal epithelial-mesenchymal transition (EMT) and dorsal migration that follows ventral furrow formation. This phenotype is not a secondary consequence of failed cytokinesis, as it is rescued by a mutant form of pbl that does not rescue the cytokinetic defect. In wild-type embryos, newly invaginated cells at the lateral edges of the mesoderm extend numerous protrusions. In pbl mutant embryos, however, cells appear more tightly adhered to their neighbours and extend very few protrusions. Consistent with the dependence of the mesoderm EMT and cytokinesis on actin organisation, the GTP exchange function of the PBL RhoGEF is required for both processes. By contrast, the N-terminal BRCT domains of PBL are required only for the cytokinetic function of PBL. These studies reveal that a novel PBL-mediated intracellular signalling pathway operates in mesodermal cells during the transition from an epithelial to migratory mesenchymal morphology during gastrulation.