The GATA-like transcription factor gene serpent is necessary for embryonic fat-cell differentiation in Drosophila (Sam, S., Leise, W. and Hoshizaki, D. K. (1996) Mech. Dev. 60, 197-205) and has been proposed to function in a cell-fate choice between fat cell and somatic gonadal precursors (Moore, L. A., Broihier, H. T., Van Doren, M. and Lehmann, R. (1998) Development 125, 837-44; Riechmann, V., Irion, U., Wilson, R., Grosskortenhaus, R. and Leptin, M. (1997) Development 124, 2915-22). Here, we report that deregulated expression of serpent in the mesoderm induces the formation of ectopic fat cells and prevents the migration and coalescence of the somatic gonadal precursors. The ectopic fat cells do not arise from hyperproliferation of the primary fat-cell clusters but they do associate with the endogenous fat cells to form a fat body that is expanded in both the dorsal/ventral and anterior/posterior axes. Misexpression of serpent also affects the differentiation of muscle cells. Few body-wall muscle precursors are specified and there is a loss of most body-wall muscle fibers. The precursors of the visceral mesoderm are also absent and concomitantly the visceral muscle is absent. We suggest that the ectopic fat cells might originate from cells that have the potential, but do not normally, differentiate into fat cells or from cells that have acquired a fat-cell fate. In light of our results, we discuss the role of serpent in fat-cell specification and in cell fate choices.