Whole-genome transgenic RNAi libraries permit systematic genetic screens in individual tissues of Drosophila. However, there is a high incidence of nonspecific phenotypes because of off-target effects. To minimize such effects, it is essential to obtain a deeper understanding of the specificity of action of RNAi. Here, in vivo assays are used to determine the minimum, contiguous nucleotide pairing required between an siRNA and a target mRNA to generate a phenotype. We observe that as few as 16 nucleotides of contiguous homology are sufficient to attenuate gene activity. This finding provides an explanation for the high incidence of off-target effects observed in RNAi-based genetic screens. Toward improving the efficacy of RNAi-induced phenotypes in vivo, we describe siRNA expression vectors that allow coexpression of one or more siRNAs with a fluorescent reporter gene in cultured cells or transgenic flies. This expression system makes use of the small intron from the ftz segmentation gene to provide efficient processing of synthetic siRNAs from a reporter transcript. These studies provide a foundation for the specific and effective use of gene silencing in transgenic Drosophila.