The formation of dorsal-ventral polarity in Drosophila requires the asymmetric nuclear localization of the dorsal protein along the D/V axis. This process is regulated by the action of the dorsal group genes and cactus. We show that dorsal and cactus are both phosphoproteins that form a stable cytoplasmic complex, and that the cactus protein is stabilized by its interaction with dorsal. The dorsal-cactus complex dissociates when dorsal is targeted to the nucleus. While the phosphorylation of cactus remains apparently unchanged during early embryogenesis, the phosphorylation state of dorsal correlates with its release from cactus and with its nuclear localization. This differential phosphorylation event is regulated by the dorsal group pathway.