In C. elegans development, unfavorable growth conditions lead a larva to an arrested and enduring form called a dauer. To elucidate components upstream of DAF-7/TGF-beta in this control pathway, we isolated a mutant that was defective in daf-7 promoter::gfp reporter expression and showed an arrested (dauer-constitutive) phenotype. It has a new mutation in the daf-11 gene encoding a transmembrane guanylyl cyclase. We show that daf-11 gene and a related gene daf-21 act upstream of daf-7, and cilium-related genes che-2 and che-3 are placed between daf-11 and daf-7, in the genetic pathway controlling dauer formation. Expression of daf-11 cDNA by cell specific promoters suggests that daf-11 acts cell autonomously in ASI chemosensory neurons for daf-7 expression.