The vulval precursor cells (VPCs) are spatially patterned by a LET-23/EGF receptor-mediated inductive signal and a LIN-12/Notch-mediated lateral signal. The lateral signal has eluded identification, so the mechanism by which lateral signaling is activated has not been known. Here, we computationally identify ten genes that encode potential ligands for LIN-12, and show that three of these genes, apx-1, dsl-1, and lag-2, are functionally redundant components of the lateral signal. We also show that transcription of all three genes is initiated or upregulated in VPCs in response to inductive signaling, suggesting that direct transcriptional control of the lateral signal by the inductive signal is part of the mechanism by which these cell signaling events are coordinated. In addition, we show that DSL-1, which lacks a predicted transmembrane domain, is a natural secreted ligand and can substitute for the transmembrane ligand LAG-2 in different functional assays.