In short germ embryos, the germ rudiment forms at the posterior ventral side of the egg, while the anterior-dorsal region becomes the extra-embryonic serosa. It is difficult to see how an anterior gradient like that of bicoid in Drosophila could in these embryos be directly involved in patterning of the germ rudiment. Moreover, since it has not yet been possible to recover a bicoid homologue from any species outside the diptera, it has been speculated that the anterior bicoid gradient could be a late addition during insect evolution. We addressed this question by analysing the regulation of potential target genes of bicoid in the short germ embryo of Tribolium castaneum. We demonstrate that homologues of caudal and hunchback from Tribolium are regulated by Drosophila bicoid. In Drosophila, maternal caudal RNA is translationally repressed by bicoid. We find that Tribolium caudal RNA is also translationally repressed by bicoid, when it is transferred into Drosophila embryos under a maternal promoter. This strongly suggests that a functional bicoid homologue must exist in Tribolium. The second target gene, hunchback, is transcriptionally activated by bicoid in Drosophila. Transfer of the regulatory region of Tribolium hunchback into Drosophila also results in regulation by early maternal factors, including bicoid, but in a pattern that is more reminiscent of Tribolium hunchback expression, namely in two early blastoderm domains. Using enhancer mapping constructs and footprinting, we show that caudal activates the posterior of these domains via a specific promoter. Our experiments suggest that a major event in the evolutionary transition from short to long germ embryogenesis was the switch from activation of the hunchback gap domain by caudal to direct activation by bicoid. This regulatory switch can explain how this domain shifted from a posterior location in short germ embryos to its anterior position in long germ insects, and it also suggest how an anterior gradient can pattern the germ rudiment in short germ embryos, i.e. by regulating the expression of caudal.