The Drosophila drifter (dfr) gene, previously referred to as Cf1a, encodes a POU-domain DNA-binding protein implicated as a neuron-specific regulator in the developing central nervous system (CNS). We have isolated full-length dfr cDNA clones that encode a 46-kD protein containing the conserved POU-domain DNA-binding domain. The use of alternate polyadenylation sites produces two dfr mRNA transcripts that are first expressed in stage 10 embryos at 5- to 6-hr of development. A specific anti-dfr polyclonal antiserum generated against a dfr-glutathione S-transferase fusion protein recognizes a 46-kD protein on Western blots and has been used to analyze the cell-specific distribution of dfr protein during embryonic development. dfr protein is distributed in a complex expression pattern including the tracheal system, the middle pair of midline glia, and selected CNS neurons. We have carried out a genetic characterization of the dfr locus, previously localized to region 65D of the third chromosome, by generating a series of overlapping deficiencies between 65A and 65E1 that were used to isolate dfrE82, an EMS-induced lethal allele. Analysis of dfrE82 mutant embryos shows a disruption of the developing tracheal tree as well as commissural defects in the developing CNS. Based on an examination of a cell-specific marker for tracheal cells and midline glia, these defects appear to be caused by a failure of these cells to follow their characteristic routes of migration. The dfrE82 tracheal phenotype is rescued by a dfr minigene present as a P-element transposon expressing wild-type dfr protein in tracheal cells. These results suggest that the dfr protein plays a fundamental role in the differentiation of tracheal cells and midline glia possibly by regulating the expression of essential cell-surface proteins required for cell-cell interactions involved in directed cell migrations.