The organization of chromosomes into euchromatin and heterochromatin is one of the most enigmatic aspects of genome evolution. For a long time, heterochromatin was considered to be a genomic wasteland, incompatible with gene expression. However, recent studies--primarily conducted in Drosophila melanogaster--have shown that this peculiar genomic component performs important cellular functions and carries essential genes. New research on the molecular organization, function and evolution of heterochromatin has been facilitated by the sequencing and annotation of heterochromatic DNA. About 450 predicted genes have been identified in the heterochromatin of D. melanogaster, indicating that the number of active genes is higher than had been suggested by genetic analysis. Most of the essential genes are still unknown at the molecular level, and a detailed functional analysis of the predicted genes is difficult owing to the lack of mutant alleles. Far from being a peculiarity of Drosophila, heterochromatic genes have also been found in Saccharomyces cerevisiae, Schizosaccharomyces pombe, Oryza sativa and Arabidopsis thaliana, as well as in humans. The presence of expressed genes in heterochromatin seems paradoxical because they appear to function in an environment that has been considered incompatible with gene expression. In the future, genetic, functional genomic and proteomic analyses will offer powerful approaches with which to explore the functions of heterochromatic genes and to elucidate the mechanisms driving their expression.