In mammals, synthesis of cholesterol and unsaturated fatty acids is controlled by SREBPs, a family of membrane-bound transcription factors. Here, we show that the Drosophila genome encodes all components of the SREBP pathway, including a single SREBP (dSREBP), SREBP cleavage-activating protein (dSCAP), and the two proteases that process SREBP at sites 1 and 2 to release the nuclear fragment. In cultured Drosophila S2 cells, dSREBP is processed at sites 1 and 2, and the liberated fragment increases mRNAs encoding enzymes of fatty acid biosynthesis, but not sterol or isoprenoid biosynthesis. Processing requires dSCAP, but is not inhibited by sterols as in mammals. Instead, dSREBP processing is blocked by palmitic acid. These findings suggest that the ancestral SREBP pathway functions to maintain membrane integrity rather than to control cholesterol homeostasis.