The homeotic proteins encoded by the genes of the Drosophila HOM and the vertebrate HOX complexes do not bind divergent DNA sequences with a high selectivity. In vitro, HOM (HOX) specificity can be increased by the formation of heterodimers with Extradenticle (EXD) or PBX homeodomain proteins. We have identified a single essential Labial (LAB)/EXD-binding site in a Decapentaplegic (DPP)-responsive enhancer of the homeotic gene lab which drives expression in the developing midgut. We show that LAB and EXD bind cooperatively to the site in vitro, and that the expression of the enhancer in vivo requires exd and lab function. In addition, point mutations in either the EXD or the LAB subsite compromise enhancer function, strongly suggesting that EXD and LAB bind to this site in vivo. Interestingly, we found that the activity of the enhancer is only stimulated by DPP signaling significantly upon binding of LAB and EXD. Thus, the enhancer appears to integrate positional information via the homeotic gene lab, and spatiotemporal information via DPP signaling; only when these inputs act in concert in an endodermal cell is the enhancer fully active. Our results illustrate how a tissue-specific response to DPP can be generated through synergistic effects on an enhancer carrying both DPP- and HOX-responsive sequences.