The transformer gene is one of a set of regulatory genes that form the hierarchy controlling all aspects of somatic sexual differentiation in Drosophila melanogaster. The gene transformer occupies an intermediate position in this hierarchy. Analysis of this gene has allowed us to determine the mechanism by which it is regulated in a sex-specific manner and to examine the way in which the regulatory hierarchy is organized. The female-specific expression of the tra gene, previously inferred from genetic observations, is based on sex-specific alternative splicing of tra pre-mRNA and is not the result of sex-specific transcriptional activation. The female-specific RNA produced by this alternative splicing is the functional mediator of tra activity. Multiple genetic, molecular, and transformation experiments show that female-specific activation of genes or gene products occurs in the order Sex lethal greater than transformer greater than transformer-2 greater than doublesex greater than or equal to intersex greater than female differentiation. The results do not distinguish the level at which transformer might regulate the downstream gene transformer-2. Neither transformer nor any of the down-stream genes feedback on, or participate in, alternative splicing of transformer RNA. The mechanism by which Sex lethal regulates transformer splicing appears to be a repression of the use of one of a pair of splice acceptor sites.