A key question in developmental biology is how cells exchange positional information for proper patterning during organ development. In plant roots the radial tissue organization is highly conserved with a central vascular cylinder in which two water conducting cell types, protoxylem and metaxylem, are patterned centripetally. We show that this patterning occurs through crosstalk between the vascular cylinder and the surrounding endodermis mediated by cell-to-cell movement of a transcription factor in one direction and microRNAs in the other. SHORT ROOT, produced in the vascular cylinder, moves into the endodermis to activate SCARECROW. Together these transcription factors activate MIR165a and MIR166b. Endodermally produced microRNA165/6 then acts to degrade its target mRNAs encoding class III homeodomain-leucine zipper transcription factors in the endodermis and stele periphery. The resulting differential distribution of target mRNA in the vascular cylinder determines xylem cell types in a dosage-dependent manner. A study of plant root development in the classic plant model Arabidopsis implicates a microRNA, miRNA165/6, in communication between cells and as a determinant of root cell fate. Patterning of the xylem tubes that transport water and solutes from root to shoot is shown to depend on a novel bi-directional signalling pathway involving cell-to-cell movement of a transcription factor in one direction, and microRNAs in the other. The transcription factor, SHORT ROOT, produced in the vascular cylinder, moves into the endodermis where, with SCARECROW, it activates the microRNAs MIR165a and MIR166b, which then, back in the vascular cells, degrade their target messenger RNAs encoding class III homeodomain-leucine zipper transcription factors. The involvement of a cascade of evolutionarily conserved transcription factors and miRNAs in this regulatory pathway suggests that it may be an evolutionary adaptation to terrestrial growth. A fundamental question in developmental biology is how cells communicate positional information to pattern the tissues of an organ. Here, the patterning of a plant's xylem tubes, which transport water and solutes from root to shoot, is studied. A new bidirectional signalling pathway is discovered, whereby a transcription factor moves from cell to cell in one direction, and microRNAs move in the other direction. The result is a differential distribution of target mRNA in the vascular cylinder, determining xylem cell types.