We report the molecular characterization of the spineless (ss) gene of Drosophila, and present evidence that it plays a central role in defining the distal regions of both the antenna and leg. ss encodes the closest known homolog of the mammalian dioxin receptor, a transcription factor of the bHLH-PAS family. Loss-of-function alleles of ss cause three major phenotypes: transformation of distal antenna to leg, deletion of distal leg (tarsal) structures, and reduction in size of most bristles. Consistent with these phenotypes, ss is expressed in the distal portion of the antennal imaginal disc, the tarsal region of each leg disc, and in bristle precursor cells. Ectopic expression of ss causes transformation of the maxillary palp and distal leg to distal antenna, and induces formation of an ectopic antenna in the rostral membrane. These effects indicate that ss plays a primary role in specifying distal antennal identity. In the tarsus, ss is expressed only early, and is required for later expression of the tarsal gene bric à brac (bab). Ectopic expression causes the deletion of medial leg structures, suggesting that ss plays an instructive role in the establishment of the tarsal primordium. In both the antenna and leg, ss expression is shown to depend on Distal-less (Dll), a master regulator of ventral appendage formation. The antennal transformation and tarsal deletions caused by ss loss-of-function mutations are probably atavistic, suggesting that ss played a central role in the evolution of distal structures in arthropod limbs.