The vitamin A derivative, retinoic acid, can regulate morphogenesis and differentiation in vertebrates. Two different subfamilies of the steroid receptor superfamily of transcription factors, the retinoic acid receptors and the retinoid X receptor, mediate the effects of retinoic acid. As part of an analysis of the hormonal control of development, we have examined the Drosophila genome for retinoic acid receptor homologues. Here we describe one such gene, XR2C, which encodes a product with structural similarity to the human retinoic acid-responsive transcription factor, retinoid X receptor. This receptor-like protein is encoded by ultraspiracle (usp), a locus required both maternally and zygotically for pattern formation. The discovery that the usp product is a retinoid X receptor homologue suggests that similar chemical cues underlie morphogenic signalling in vertebrate and invertebrate systems.