The gooseberry (gsb) locus contains two closely linked genes, BSH9 and BSH4, which are structurally related to each other and to the paired (prd) gene. Sequence analysis of genomic DNA and cDNA shows that BSH9 and BSH4 can encode proteins of 427 and 452 amino acids, respectively. The structural homology between these two putative proteins and the prd protein consists essentially of two domains forming most of the amino-terminal halves of the proteins: the prd domain of 128 amino acids and a prd-type homeo domain of 60 amino acids, which is extended by 18 amino acids at its amino-terminal end. The temporal profiles of BSH9 and BSH4 transcripts, as characterized by Northern analysis, show a peak shortly after the peak of prd transcripts. The spatial distributions of BSH9 and BSH4 transcripts have been analyzed by in situ hybridization to whole-mount and sectioned embryos. BSH9 transcripts appear in the posterior ventrolateral part of each primordial segment throughout the embryo, including head and tail segments. Transcripts are initially restricted to the ectoderm, in which they arise as two spatially shifted and temporally delayed waves exhibiting double-segment periodicity and anteroposterior polarity. During germ-band extension, BSH9 is induced in the mesoderm in register with the ectoderm and neurectoderm and in the tail segments A9-A11. In contrast, BSH4 transcripts appear with a single-segment repeat, first, in the neurectoderm during germ-band extension and, later, in single neurons during neuronal differentiation. BSH9, BSH4, and prd are activated in cells that are in register along the anteroposterior axis of the embryo in the posterior parts of primordial segments comprising the posterior compartments of engrailed expression.