Recently, we reported the cloning of the Drosophila melanogaster homolog of the vertebrate CCAAT/enhancer-binding protein (C/EBP). Here, we describe studies of the DNA-binding and dimerization properties of Drosophila C/EBP (DmC/EBP), as well as its tissue distribution, developmental regulation, and essential role in embryonic development and conclude that it bears functional as well as structural similarity to mammalian C/EBP. DmC/EBP contains a basic region/leucine zipper (bZIP) DNA-binding domain very similar to that of mammalian C/EBP and the purified C/EBPs bound to DNA with the same sequence specificity. Among the DNA sequences that DmC/EBP bound with high affinity was a conserved site within the promoter of the DmC/EBP gene itself. In vitro, DmC/EBP and mammalian C/EBP specifically formed functional heterodimers; however, as we found no evidence for a family of DmC/EBPs, DmC/EBP may function as a homodimer in vivo. The DmC/EBP protein was expressed predominantly during late embryogenesis in the nuclei of a restricted set of differentiating cell types, such as the lining of the gut and epidermis, similar to the mammalian tissues that express C/EBP. We have characterized mutations in the DmC/EBP gene and found that deleting the gene caused late embryonic lethality. Embryos that lack C/EBP die just before or just upon hatching. The lethal phenotype of C/EBP mutants can be rescued with the cloned C/EBP gene introduced by P-element-mediated germ-line transformation. The strict requirement for C/EBP during Drosophila embryogenesis, coupled with its structural and functional similarities to mammalian C/EBP, provides a useful genetic system in which to study the role of C/EBP in development.