All imaginal discs in Drosophila are made up of a layer of columnar epithelium or the disc proper and a layer of squamous epithelium called the peripodial membrane. Although the developmental and molecular events in columnar epithelium or the disc proper are well understood, the peripodial membrane has gained attention only recently. Using the technique of lineage tracing, we show that peripodial and disc proper cells arise from a common set of precursors cells in the embryo, and that these cells diverge in the early larval stages. However, peripodial and disc proper cells maintain a spatial relationship even after the separation of their lineages. The peripodial membrane plays a significant role during the regional subdivision of the wing disc into presumptive wing, notum and hinge. The Egfr/Ras pathway mediates this function of the peripodial membrane. These results on signaling between squamous and columnar epithelia are particularly significant in the context of in vitro studies using human cell lines that suggest a role for the Egfr/Ras pathway in metastasis and tumour progression.