The Drosophila TATA box-binding protein (TBP)-related factor 2 (TRF2 or TLF) was shown to control a subset of genes different from that controlled by TBP. Here, we have investigated the structure and functions of the trf2 gene. We demonstrate that it encodes two protein isoforms: the previously described 75-kDa TRF2 and a newly identified 175-kDa version in which the same sequence is preceded by a long N-terminal domain with coiled-coil motifs. Chromatography of Drosophila embryo extracts revealed that the long TRF2 is part of a multiprotein complex also containing ISWI. Both TRF2 forms are detected at the same sites on polytene chromosomes and have the same expression patterns, suggesting that they fulfill similar functions. A study of the manifestations of the trf2 mutation suggests an essential role of TRF2 during embryonic Drosophila development. The trf2 gene is strongly expressed in germ line cells of adult flies. High levels of TRF2 are found in nuclei of primary spermatocytes and trophocytes with intense transcription. In ovaries, TRF2 is present both in actively transcribing nurse cells and in the transcriptionally inactive oocyte nuclei. Moreover, TRF2 is essential for premeiotic chromatin condensation and proper differentiation of germ cells of both sexes.