The establishment of embryonic dorsoventral polarity in Drosophila depends on a signaling mechanism in which the signal for ventral development is locally produced. This mechanism requires the activity of the nudel gene in ovarian follicle cells, which provide dorsoventral positional information for the embryo. The nudel gene product, a large mosaic protein with a central serine protease domain, has been proposed to function in locally triggering a protease cascade that produces the ventral signal. Here we provide evidence that the serine protease activity of the Nudel protein is essential for embryonic dorsoventral polarity and that the active Nudel protease is generated by autoproteolytic cleavage of a zymogen form. Activation of the Nudel protease is independent of the other known proteases involved in dorsoventral polarity establishment and appears to occur symmetrically on the surface of the embryo. Our findings suggest that Nudel protease activation initiates the protease cascade that produces the ventral signal, but that spatial regulation occurring downstream of Nudel protease activation localizes the cascade to the ventral side of the embryo.