In Drosophila, specification of embryonic terminal cells is controlled by the Torso receptor tyrosine kinase. Here, we analyze the molecular basis of positive (Y630) and negative (Y918) phosphotyrosine (pY) signaling sites on Torso. We find that the Drosophila homolog of RasGAP associates with pY918 and is a negative effector of Torso signaling. Further, we show that the tyrosine phosphatase Corkscrew (CSW), which associates with pY630, specifically dephosphorylates the negative pY918 Torso signaling site, thus identifying Torso to be a substrate of CSW in the terminal pathway. CSW also serves as an adaptor protein for DRK binding, physically linking Torso to Ras activation. The opposing actions of CSW and RasGAP modulate the strength of the Torso signal, contributing to the establishment of precise boundaries for terminal structure development.