We are taking two approaches to understanding the structure, function and regulation of essential genes within Drosophila heterochromatin. In the first, we have undertaken a genetic and molecular characterization of essential genes within proximal 3L heterochromatin. The expression of such 'resident' genes within a heterochromatic environment is paradoxical and poorly understood, given that the same environment can inactivate euchromatic sequences (position effect variegation, or PEV). A second approach involves the study of the local chromosomal environment of heterochromatic (het) genes, as assayed both biochemically, and via the effects of genetic modifiers of PEV, the latter being putative components important for het gene expression. Our results to date suggest that the three most proximal genes in 3L heterochromatin have key roles in development, and indicate strong effects of combinations of genetic modifiers of PEV on het gene expression.