We show that HMG-D, an abundant chromosomal protein, is associated with condensed chromatin structures during the first six nuclear cleavage cycles of the developing Drosophila embryo and that histone H1 is absent from these same structures. As H1 accumulates from nuclear division 7 onwards, the nuclei become more compact and transcriptionally active. This compaction is paralleled by a reduction in size of mitotic chromatin. In addition, we find a striking correlation between the switch in HMG-D:H1 ratios and the changes that occur between nuclear cycles 8 and 13 that are collectively termed the mid-blastula transition. This transition is characterized by an increase in the nuclear cycle times, a change in the nucleo-cytoplasmic ratio, and a 5- to 20-fold decrease in nuclear volume. We propose that this is a direct consequence of a re-organization of chromatin from a less condensed state with HMG-D to a more condensed state with H1. We argue that HMG-D, either by itself or in conjunction with other chromosomal proteins, induces a condensed state of chromatin that is distinct from, and less compact than the H1-containing 30 nm fibre and that this state of chromatin could facilitate rapid nuclear cycles.