The steroid 20-hydroxyecdysone (20E) is the primary regulatory hormone that mediates developmental transitions in insects and other arthropods. 20E is produced from ecdysone (E) by the action of a P450 monooxygenase that hydroxylates E at carbon 20. The gene coding for this key enzyme of ecdysteroidogenesis has not been identified definitively in any insect. We show here that the Drosophila E-20-monooxygenase (E20MO) is the product of the shade (shd) locus (cytochrome p450, CYP314a1). When shd is transfected into Drosophila S2 cells, extensive conversion of E to 20E is observed, whereas in sorted homozygous shd embryos, no E20MO activity is apparent either in vivo or in vitro. Mutations in shd lead to severe disruptions in late embryonic morphogenesis and exhibit phenotypes identical to those seen in disembodied (dib) and shadow (sad) mutants, two other genes of the Halloween class that code for P450 enzymes that catalyze the final two steps in the synthesis of E from 2,22-dideoxyecdysone. Unlike dib and sad, shd is not expressed in the ring gland but is expressed in peripheral tissues such as the epidermis, midgut, Malpighian tubules, and fat body, i.e., tissues known to be major sites of E20MO activity in a variety of insects. However, the tissue in which shd is expressed does not appear to be important for developmental function because misexpression of shd in the embryonic mesoderm instead of the epidermis, the normal embryonic tissue in which shd is expressed, rescues embryonic lethality.