The Drosophila melanogaster E74 gene is induced directly by the steroid hormone ecdysone and is a member of a small set of "early" genes that appear to trigger the onset of metamorphosis. The gene consists of three overlapping transcription units encoding two proteins, E74A and E74B, which possess a common C terminus. According to the Ashburner model for ecdysone's action, an E74 protein product potentially functions as a transcriptional activator of "late" genes as well as a repressor of early genes. We have taken an evolutionary approach to understand the function and regulation of E74 by isolating the homologous genes from Drosophila pseudoobscura and Drosophila virilis and comparing them to D. melanogaster E74 sequences. Conserved characteristics of the E74 genes include ecdysone inducibility, localization to ecdysone-induced polytene chromosome puffs, and gene size. Amino acid sequence comparisons of the E74A protein reveal a highly conserved C-terminal region that is rich in basic amino acid residues and which has been proposed to possess sequence-specific DNA binding activity. The moderately conserved N-terminal region has maintained its overall acidic character and is a potential transcriptional activator domain. The central region contains conserved glutamine and alanine homopolymeric repeats of variable lengths. Nucleotide sequence comparisons of the E74A promoter region fail to reveal ecdysone-response elements but do identify conserved sequences that may function in E74A regulation.