Incorrectly specified or mis-specified cells often undergo cell death or are transformed to adopt a different cell fate during development. The underlying cause for this distinction is largely unknown. In many developmental mutants in Drosophila, large numbers of mis-specified cells die synchronously, providing a convenient model for analysis of this phenomenon. The maternal mutant bicoid is particularly useful model with which to address this issue because its mutant phenotype is a combination of both transformation of tissue (acron to telson) and cell death in the presumptive head and thorax regions. We show that a subset of these mis-specified cells die through an active gene-directed process involving transcriptional upregulation of the cell death inducer hid. Upregulation of hid also occurs in oskar mutants and other segmentation mutants. In hid bicoid double mutants, mis-specified cells in the presumptive head and thorax survive and continue to develop, but they are transformed to adopt a different cell fate. We provide evidence that the terminal torso signaling pathway protects the mis-specified telson tissue in bicoid mutants from hid-induced cell death, whereas mis-specified cells in the head and thorax die, presumably because equivalent survival signals are lacking. These data support a model whereby mis-specification can be tolerated if a survival pathway is provided, resulting in cellular transformation.