The Drosophila Dhr78 orphan nuclear receptor has been proposed to play a role in molting of the tracheal cuticle and regulate gene expression during the third larval instar, possibly in response to a novel systemic hormonal signal. Here, we show that there are no essential maternal functions for Dhr78 during development, and that mutants missing both maternal and zygotic Dhr78 function die primarily during second and third instar larval development. We show that defects in the tracheal system can be observed as early as the first instar, manifested as regions of fluid in the dorsal tracheal trunks. In addition, Dhr78 mutant tracheae show a highly penetrant defect in gas filling at the first-to-second instar larval molt. Dhr78 expression in only the tracheal system is sufficient to rescue the lethality of Dhr78 mutants, and selective inactivation of Dhr78 function in the tracheae by targeted RNAi is sufficient to result in tracheal defects. Finally, we see no evidence for widespread activation of the Dhr78 ligand binding domain in third instar larvae using the GAL4-LBD system, arguing against a systemic hormone for the receptor at this stage in development. Taken together, our results indicate that Dhr78 exerts its essential functions during molting of the tracheal cuticle in Drosophila.