The Krüppel-like transcription factors (KLFs) represent a family of 15 different zinc finger proteins of the C(2)H(2) type that are involved in vertebrate development and which control cell proliferation, growth and differentiation. Structural-functional considerations have segregated KLF6 and KLF7 into a phylogenetically distinct group. Here we report the identification of Luna, the Drosophila progenitor of the mammalian KLF6/KLF7 group. This conclusion is based on the near sequence identity, as well as the comparable location of the DNA-binding domains and nuclear localization signals of the insect and mammalian proteins. The homology extends to the composition and function of the amino-terminal segment of Luna which, similarly to the mammalian counterparts, stimulates transcription in a reporter gene assay. We also present preliminary in vivo evidence of Luna involvement in embryonic development and cell differentiation. First, luna RNA interference and luna overexpression during early Drosophila embryogenesis leads to developmental arrest at different embryonic stages. Second, targeted perturbation of luna expression in the forming compound eye interferes with terminal cell differentiation, but not cell specification. We therefore propose that Luna is a novel transcriptional determinant of Drosophila development.