The Extradenticle (Exd) protein in Drosophila acts as a cofactor to homeotic proteins. Its nuclear localization is regulated. We report the cloning of the Drosophila homothorax (hth) gene, a homolog of the mouse Meis1 proto-oncogene that has a homeobox related to that of exd. Comparison with Meis1 finds two regions of high homology: a novel MH domain and the homeodomain. In imaginal discs, hth expression coincides with nuclear Exd. hth and exd also have virtually identical, mutant clonal phenotypes in adults. These results suggest that hth and exd function in the same pathway. We show that hth acts upstream of exd and is required and sufficient for Exd protein nuclear localization. We also show that hth and exd are both negative regulators of eye development; their mutant clones caused ectopic eye formation. Targeted expression of hth, but not of exd, in the eye disc abolished eye development completely. We suggest that hth acts with exd to delimit the eye field and prevent inappropriate eye development.