The Drosophila melanogaster HSC3 and HSC4 genes encode Hsc70 proteins homologous to the mammalian endoplasmic reticulum (ER) protein BiP and the cytoplasmic clathrin uncoating ATPase, respectively. These proteins possess ATP binding/hydrolysis activities that mediate their ability to aid in protein folding by coordinating the sequential binding and release of misfolded proteins. To investigate the roles of HSC3 (Hsc3p) and HSC4 (Hsc4p) proteins during development, GAL4-targeted gene expression was used to analyze the effects of producing dominant negatively acting Hsc3p (D231S, K97S) and Hsc4p (D206S, K71S) proteins, containing single amino acid substitutions in their ATP-binding domains, in specific tissues of Drosophila throughout development. We show that the production of each mutant protein results in lethality over a range of developmental stages, depending on the levels of protein produced and which tissues are targeted. We demonstrate that the functions of both Hsc3p and Hsc4p are required for proper tissue establishment and maintenance. Production of mutant Hsc4p, but not Hsc3p, results in induction of the stress-inducible Hsp70 at normal temperatures. Evidence is presented that lethality is caused by tissue-specific defects that result from a global accumulation of misfolded protein caused by lack of functional Hsc70. We show that both mutant Hsc3ps are defective in ATP-induced substrate release, although Hsc3p(D231S) does undergo an ATP-induced conformational change. We believe that the amino acid substitutions in Hsc3p interfere with the structural coupling of ATP binding to substrate release, and this defect is the basis for the mutant proteins' dominant negative effects in vivo.