N-linked glycosylation is a prevalent protein modification in eukaryotic cells. Although glycosylation plays an important role in cell signaling during development, a role for N-linked glycosylation in embryonic patterning has not previously been described. In a screen for maternal factors involved in embryo patterning, we isolated mutations in Drosophila ALG5, a UDP-glucose:dolichyl-phosphate glucosyltransferase. Based on the embryonic cuticle phenotype, we designated the ALG5 locus wollknäuel (wol). Mutations in wol result in posterior segmentation phenotypes, reduced Dpp signaling, as well as impaired mesoderm invagination and germband elongation at gastrulation. The segmentation phenotype can be attributed to a post-transcriptional effect on expression of the transcription factor Caudal, whereas wol acts upstream of Dpp signalin by regulating dpp expression. The wol/ALG5 cDNA was able to partially complement the hypoglycosylation phenotype of alg5 mutant S. cerevisiae, whereas the two wol mutant alleles failed to complement. We show that reduced glycosylation in wol mutant embryos triggers endoplasmic reticulum stress and the unfolded protein response (UPR). As a result, phosphorylation of the translation factor eIF2alpha is increased. We propose a model in which translation of a few maternal mRNAs, including caudal, are particularly sensitive to increased eIF2alpha phosphorylation. According to this view, inappropriate UPR activation can cause specific patterning defects during embryo development.