Mutations in the Drosophila gene extradenticle (exd) cause homeotic transformations by altering the morphological consequences of homeotic selector gene activity. We have cloned and sequenced exd: it encodes a homeodomain protein with extensive identity (71%) to the human proto-oncoprotein Pbx1. exd is expressed during embryogenesis when the selector homeodomain proteins of the Antennapedia and bithorax complexes establish segmental identity. Maternally expressed exd is uniform and can suppress the segmental transformations of embryos lacking zygotic exd. While zygotic exd expression is also at first uniform, later expression is modulated by the homeotic selector genes. These studies support the view that exd acts with the selector homeodomain proteins as a DNA-binding transcription factor, thereby altering their regulation of downstream target genes.