The sloppy paired locus is involved in the establishment of the metameric body plan of the Drosophila embryo. We have cloned the sloppy paired locus by P-element-mediated enhancer detection. The locus is composed of two genes, slp1 and slp2, that are structurally and functionally related. They belong to a novel class of putative transcription factors containing a fork head domain that has also been found in mammalian hepatocyte transcription factors. The spatial expression patterns of the two transcripts are very similar, suggesting common regulation of the two genes. We recovered additional sloppy paired alleles by remobilization of an enhancer detector transposon. Genetic analysis suggests that both genes contribute to the segmentation phenotype that has characteristics of both, pair-rule and segment polarity genes, and that they interact functionally. The two genes appear to share an enhancer element situated upstream of slp1 that acts on both the proximal slp1 promoter and the distal slp2 promoter.