Models for short-range Dpp signaling. (A) Cap cells (blue) express Dally on the cell surface (red), and germ cells express Dpp receptor (green). A dividing GSC is shown at the top, and two daughter cells are shown at the bottom. Dpp signal transduction occurs (ON) where these molecules meet (yellow). Dpp signaling is not activated in GSCs that do not directly contact the cap cells (OFF), leading to differentiation. (A′) In dally mutants, Dpp signaling is reduced, and GSCs are lost to differentiation. (A″) When dally is ectopically expressed in somatic cells (purple) adjacent to germ cells, Dpp signaling is activated at ectopic sites (yellow), resulting in expansion of the GSC niche and loss of differentiating cells. (B) Dpp (red circle) expressed in the cap cells is presented by Dally (red plus sign) on the surface of these cells, thus limiting Dpp distribution. (B′) In dally mutants, Dpp protein is either destabilized or diffuses away. (B″) Ectopic dally leads to the expansion of Dpp protein distribution.