In a developing embryo, the spatial distribution of a signaling molecule, or a morphogen gradient, has been hypothesized to carry positional information to pattern tissues. Recent measurements of morphogen distribution have allowed us to subject this hypothesis to rigorous physical testing. In the early Drosophila embryo, measurements of the morphogen Dorsal, which is a transcription factor responsible for initiating the earliest zygotic patterns along the dorsal-ventral axis, have revealed a gradient that is too narrow to pattern the entire axis. In this study, we use a mathematical model of Dorsal dynamics, fit to experimental data, to determine the ability of the Dorsal gradient to regulate gene expression across the entire dorsal-ventral axis. We found that two assumptions are required for the model to match experimental data in both Dorsal distribution and gene expression patterns. First, we assume that Cactus, an inhibitor that binds to Dorsal and prevents it from entering the nuclei, must itself be present in the nuclei. And second, we assume that fluorescence measurements of Dorsal reflect both free Dorsal and Cactus-bound Dorsal. Our model explains the dynamic behavior of the Dorsal gradient at lateral and dorsal positions of the embryo, the ability of Dorsal to regulate gene expression across the entire dorsal-ventral axis, and the robustness of gene expression to stochastic effects. Our results have a general implication for interpreting fluorescence-based measurements of signaling molecules. 