We have designed a system for targeted gene expression that allows the selective activation of any cloned gene in a wide variety of tissue- and cell-specific patterns. The gene encoding the yeast transcriptional activator GAL4 is inserted randomly into the Drosophila genome to drive GAL4 expression from one of a diverse array of genomic enhancers. It is then possible to introduce a gene containing GAL4 binding sites within its promoter, to activate it in those cells where GAL4 is expressed, and to observe the effect of this directed misexpression on development. We have used GAL4-directed transcription to expand the domain of embryonic expression of the homeobox protein even-skipped. We show that even-skipped represses wingless and transforms cells that would normally secrete naked cuticle into denticle secreting cells. The GAL4 system can thus be used to study regulatory interactions during embryonic development. In adults, targeted expression can be used to generate dominant phenotypes for use in genetic screens. We have directed expression of an activated form of the Dras2 protein, resulting in dominant eye and wing defects that can be used in screens to identify other members of the Dras2 signal transduction pathway.