Many oncogenes associated with human sarcomas are composed of a fusion between transcription factors and the N-terminal portions of two similar RNA-binding proteins, TLS and EWS. Though the oncogenic fusion proteins lack the RNA-binding domain and do not bind RNA, the contribution from the N-terminal portion of the RNA-binding protein is essential for their transforming activity. TLS and EWS associate in vivo with RNA polymerase II (Pol II) transcripts. To learn more about the target gene specificity of this interaction, the localization of a Drosophila melanogaster protein that has extensive sequence identity to the C-terminal RNA-binding portions of TLS and EWS was studied in preparations of Drosophila polytene nuclei. cDNA clones encoding the full-length Drosophila TLS-EWS homolog, SARFH (stands for sarcoma-associated RNA-binding fly homolog), were isolated. Functional similarity to TLS and EWS was revealed by the association of SARFH with Pol II transcripts in mammalian cells and by the ability of SARFH to elicit homologous down-regulation of the levels of the mammalian proteins. The SARFH gene is expressed in the developing Drosophila embryo from the earliest stages of cellularization and is subsequently found in many cell types. In preparations of polytene chromosomes from salivary gland nuclei, SARFH antibodies recognize their target associated with the majority of active transcription units, revealed by colocalization with the phosphorylated form of RNA Pol II. We conclude that SARFH and, by homology, EWS and TLS participate in a function common to the expression of most genes transcribed by RNA Pol II.