Zygotic expression of the Drosophila TGF beta family member decapentaplegic (dpp) is required for the development of the dorsal embryonic structures. By injecting dpp transcripts into young embryos, we find that 2- to 4-fold increases in the concentration of injected RNA elicit progressively more dorsal cell fates: only low levels of dpp permit development of ventral ectoderm, intermediate dpp levels drive dorsal epidermal development, and high dpp levels drive cells to differentiate as the most dorsal pattern element, the amnioserosa. Localized dpp RNA injections into embryos that lack all known maternal and zygotic dorsal-ventral polarity indicate that dpp can both define embryonic polarity and organize detailed patterning within the ectoderm. We infer that dpp acts as an extracellular morphogen and that the graded activity of dpp specifies the pattern of ectodermal cell fates in the Drosophila embryo.