Patterning of the terminal regions of the Drosophila embryo is achieved by an exquisitely regulated signal that passes between the follicle cells of the ovary, and the developing embryo. This pathway, however, is missing or modified in other insects. Here we trace the evolution of this pathway by examining the origins and expression of its components. The three core components of this pathway: trunk, torso and torso-like have different evolutionary histories and have been assembled step-wise to form the canonical terminal patterning pathway of Drosophila and Tribolium. Trunk, torso and a gene unrelated to terminal patterning, prothoraciotrophic hormone (PTTH), show an intimately linked evolutionary history, with every holometabolous insect, except the honeybee, possessing both PTTH and torso genes. Trunk is more restricted in its phylogenetic distribution, present only in the Diptera and Tribolium and, surprisingly, in the chelicerate Ixodes scapularis, raising the possibility that trunk and torso evolved earlier than previously thought. In Drosophila torso-like restricts the activation of the terminal patterning pathway to the poles of the embryo. Torso-like evolved in the pan-crustacean lineage, but based on expression of components of the canonical terminal patterning system in the hemimetabolous insect Acyrthosiphon pisum and the holometabolous insect Apis mellifera, we find that the canonical terminal-patterning system is not active in these insects. We therefore propose that the ancestral function of torso-like is unrelated to terminal patterning and that torso-like has become co-opted into terminal patterning in the lineage leading to Coleoptera and Diptera. We also show that this co-option has not resulted in changes to the molecular function of this protein. Torso-like from the pea aphid, honeybee and Drosophila, despite being expressed in different patterns, are functionally equivalent. We propose that co-option of torso-like into restricting the activity of trunk and torso facilitated the final step in the evolution of this pathway; the capture of transcriptional control of target genes such as tailless and huckebein by this complex and novel patterning pathway.