The Drosophila segment polarity gene wingless encodes an intercellular signaling molecule that transmits positional information during development of the embryonic epidermis. We have explored the mechanism of wg signal transduction by perturbing cellular processes genetically and by performing structure/function analysis of the Wg protein. We present evidence that Wingless protein may transduce signal at the cell surface and that Wg may bind to its cell surface receptor without necessarily activating it. We demonstrate that two specific signaling activities of the Wg molecule can be disrupted independently by mutation. Sequence analysis indicates that these different signaling activities are not promoted by discrete functional domains, but rather than the overall conformation of the molecule may control distinct signaling functions. We conclude that wg signaling may involve complex interactions between the Wg ligand and its cell surface receptor molecule(s) and that some of this complexity resides within the Wg ligand itself.