The first morphological sign of vertebrate postcranial body segmentation is the sequential production from posterior paraxial mesoderm of blocks of cells termed somites. Each of these embryonic structures is polarized along the anterior/posterior axis, a subdivision first distinguished by marker gene expression restricted to rostral or caudal territories of forming somites. To better understand the generation of segment polarity in vertebrates, we have studied the zebrafish mutant fused somites (fss), because its paraxial mesoderm lacks segment polarity. Previously examined markers of caudal half-segment identity are widely expressed, whereas markers of rostral identity are either missing or dramatically down-regulated, suggesting that the paraxial mesoderm of the fss mutant embryo is profoundly caudalized. These findings gave rise to a model for the formation of segment polarity in the zebrafish in which caudal is the default identity for paraxial mesoderm, upon which is patterned rostral identity in an fss-dependent manner. In contrast to this scheme, the caudal marker gene ephrinA1 was recently shown to be down-regulated in fss embryos. We now show that notch5, another caudal identity marker and a component of the Delta/Notch signaling system, is not expressed in the paraxial mesoderm of early segmentation stage fss embryos. We use cell transplantation to create genetic mosaics between fss and wild-type embryos in order to assay the requirement for fss function in notch5 expression. In contrast to the expression of rostral markers, which have a cell-autonomous requirement for fss, expression of notch5 is induced in fss cells at short range by nearby wild-type cells, indicating a cell-non-autonomous requirement for fss function in this process. These new data suggest that segment polarity is created in a three-step process in which cells that have assumed a rostral identity must subsequently communicate with their partially caudalized neighbors in order to induce the fully caudalized state. © 2005 Elsevier Inc. All rights reserved.