During induction of the Caenorhabditis elegans hermaphrodite vulva by the anchor cell of the gonad, six multipotent vulval precursor cells (VPCs) have two distinct fates: three VPCs generate the vulva and the other three VPCs generate nonspecialized hypodermis. Genes that control the fates of the VPCs in response to the anchor cell signal are defined by mutations that cause all six VPCs to generate vulval tissue (Multivulva or Muv) or that cause all six VPCs to generate hypodermis (Vulvaless or Vul). Seven dominant Vul mutations were isolated as dominant suppressors of a lin-15 Muv mutation. These mutations are dominant alleles of the gene let-60, previously identified only by recessive lethal mutations. Our genetic studies of these dominant Vul recessive lethal mutations, recessive lethal mutations, intragenic revertants of the dominant Vul mutations, and the closely mapping semi-dominant multivulva lin-34 mutations suggest that: (1) loss-of-function mutations of let-60 are recessive lethal at a larval stage, but they also cause a Vul phenotype if the lethality is rescued maternally by a lin-34 gain-of-function mutation. (2) The dominant Vul alleles of let-60 are dominant negative mutations whose gene products compete with wild-type activity. (3) lin-34 semidominant Muv alleles are either gain-of-function mutations of let-60 or gain-of-function mutations of an intimately related gene that elevates let-60 activity. We propose that let-60 activity controls VPC fates. In a wild-type animal, reception by a VPC of inductive signal activates let-60, and it generates into a vulval cell type; in absence of inductive signal, let-60 activity is low and the VPC generates hypodermal cells. Our genetic interaction studies suggest that let-60 acts downstream of let-23 and lin-15 and upstream of lin-1 and lin-12 in the genetic pathway specifying the switch between vulval and nonvulval cell types.