Aberration of morphogen signaling leads directly to inappropriate cell differentiation and secondarily causes various pathological phenotypes such as abnormal morphogenesis and tumorigenesis. However, mechanisms for linking morphogen signaling and the higher order phenotypes have not been fully elucidated. Here we focus on the Drosophila T-box gene optomotor-blind (omb), a transcriptional target of a long-range morphogen Decapentaplegic (Dpp). Genetic analyses of omb function revealed that a negative feedback loop, where omb plays a crucial role, exists between Dpp and its upstream regulator Hedgehog (Hh), a short-range morphogen. Consequently, dysfunction of omb elicits hyperactivation of Hh signaling that causes an ectopic folding and local overgrowth in the wing columnar epithelium, neither of which are the direct results of reduced Dpp response. In the case of the local overgrowth, it was never seen in mutants for thick veins (tkv) encoding a Dpp receptor, suggesting that the Dpp signaling pathway is divided into two antagonistic branches, one of which contains Omb. Thus defect in feedback between the two morphogens explains both phenotypes, and disruption of a balance between the morphogen targets further accounts for the local overgrowth. These are the mechanisms for generating secondary phenotypes when a single signaling factor Omb fails to function.