<i>Caenorhabditis elegans</i> larval development requires the function of the two Canal-Associated Neurons (CANs): killing the CANs by laser microsurgery or disrupting their development by mutating the gene <i>
ceh-10</i> results in early larval arrest. How these cells promote larval development, however, remains a mystery. In screens for mutations that bypass CAN function, we identified the gene <i>
kin-29,</i> which encodes a member of the Salt-Inducible Kinase (SIK) family and a component of a conserved pathway that regulates various <i>C. elegans</i> phenotypes. Like <i>
kin-29</i> loss, gain-of-function mutations in genes that may act upstream of <i>
kin-29</i> or growth in cyclic-AMP analogs bypassed <i>
ceh-10</i> larval arrest, suggesting that a conserved adenylyl cyclase/PKA pathway inhibits KIN-29 to promote larval development and that loss of CAN function results in dysregulation of KIN-29 and larval arrest. The adenylyl cyclase ACY-2 mediates CAN-dependent larval development: <i>
acy-2</i> mutant larvae arrested development with a similar phenotype to <i>
ceh-10</i> mutants, and the arrest phenotype was suppressed by mutations in <i>
kin-29</i> ACY-2 is predominantly expressed in the CANs, and we provide evidence that the <i>
acy-2</i> functions in the CANs to promote larval development. By contrast, cell-specific expression experiments suggest that <i>
kin-29</i> acts in both the hypodermis and neurons, but not in the CANs. Based on our findings, we propose two models for how ACY-2 activity in the CANs regulates KIN-29 in target cells.