The Drosophila segment polarity gene wingless (wg) is essential for cell fate decisions in the developing embryonic epidermis. Wg protein is produced in one row of cells near the posterior of every segment and is secreted and distributed throughout the segment to generate wild-type pattern elements. Ventrally, epidermal cells secrete a diverse array of anterior denticle types and a posterior expanse of naked cuticle; dorsally, a stereotyped pattern of fine hairs is secreted. We describe three new wg alleles that promote naked cuticle cell fate but show reduced denticle diversity and dorsal patterning. These mutations cause single amino acid substitutions in a cluster of residues that are highly conserved throughout the Wnt family. By manipulating expression of transgenic proteins, we demonstrate that all three mutant molecules retain the intrinsic capacity to signal ventrally but fail to be distributed across the segment. Thus, movement of Wg protein through the epidermal epithelium is essential for proper ventral denticle specification and this planar movement is distinct from the apical-basal transcytosis previously described in polarized epithelia. Furthermore, ectopic overexpression of the mutant proteins fails to rescue dorsal pattern elements. Thus we have identified a region of Wingless that is required for both the transcytotic process and signal transduction in dorsal cell populations, revealing an unexpected link between these two aspects of Wg function.