The hedgehog signalling pathway is a conserved mechanism which acts in inductive processes in both vertebrate and invertebrate development to direct growth and patterning. In Drosophila, the secreted Hedgehog protein acts as a signal to induce non-autonomous activation in adjacent cells of either the decapentaplegic or wingless genes (both of which encode growth factor-like molecules), via inactivation of patched activity. In the eye disc, this pathway drives progression of the morphogenetic furrow, while in the wing (and leg and antennal) discs it is required to set up an organising centre along the anteroposterior compartment boundary. We have compared the regulation and function of hedgehog pathway activity in the eye and wing discs, and find that there are significant differences. Whereas in the wing disc, engrailed function is required for hedgehog expression, in the eye disc activation and maintenance of hedgehog expression is achieved independently of engrailed. Regulation of decapentaplegic expression also differs: in the wing disc it is repressed in the anterior compartment by patched and in the posterior compartment by engrailed. In the eye disc, however, it is repressed posterior to the morphogenetic furrow in the absence of either patched or engrailed activity. We conclude that in the eye disc there are novel aspects to hedgehog pathway function. Moreover, engrailed does not play an essential conserved role.