Hairless is a dominant loss of function mutation in Drosophila affecting the formation of adult sensory organs. In the mutants, neuronal precursor cells do not differentiate, suggesting that Hairless might be involved in specifying or realizing neuronal fate in the fly, similar to the 'pro-neural' genes of the achaete-scute complex. As highlighted by the manifold phenotypic interactions of Hairless with most of the neurogenic loci, the gene might play an important role in nervous system development. Therefore, we initiated a molecular analysis of the Hairless locus in order to elucidate the function of its gene product and gain insight into the biochemical nature of the observed genetic interactions in which it participates. Here, we report the molecular cloning of the Hairless locus, confirmed by breakpoint and transformation analysis. Unexpectedly, Hairless activity peaks during embryogenesis, where transcripts accumulate primarily in endo- and mesodermal cell layers, and is lowest during larval stages, the lethal phase of Hairless mutants. The putative Hairless protein deduced from DNA sequencing is extremely basic and highly enriched in serine residues. Hairless appears to encode a novel protein without compelling homology to other known proteins which function in specifying peripheral nervous system development in Drosophila.