The Drosophila adipose tissue, or fat body, and the bodywall muscle are two major tissues derived from the mesoderm. Although much is known about the lineage of muscle cells, little is known about the development of the fat body. Using known genes and an enhancer trap (29D), we have begun to trace the lineage of the cells comprising the fat body. The genes Adh (alcohol dehydrogenase) and DCg1 (type IV collagen) code for gene products involved in fat-cell metabolism and therefore serve as terminal fat-cell differentiation markers. The expression of these genes was used to identify the fat body at stage 17 and to identify the start of terminal fat-cell differentiation at stage 15. We found that the steroid-hormone receptor gene, svp (seven-up), was expressed transiently within the fat-cell lineage from stages 12 to 14. We suggest that stage 12 marks the beginning of early fat-cell differentiation and that the svp-positive cells within the mesoderm are early precursor fat cells. To confirm the identity of these cells and to establish the role of svp in the developing fat cell, we examined svp mutant embryos for alterations in the expression of the two terminal fat-cell differentiation markers, Adh and DCg1. Loss of svp function resulted in the loss of Adh transcript and a reduction of DCg1 expression specifically in the fat body. Thus, svp plays a role in fat-body-specific expression of at least two terminal fat-cell differentiation genes. In contrast to svp, we found no evidence that the steroid receptor HNF-4(D) gene was expressed in the fat body nor that it was involved in the development of this tissue. Using an enhancer-trap line (29D), we further traced the fat-cell lineage to nine bilateral clusters of cells within the mesoderm at germ-band extension. We suggest these 29D-positive cells represent the progenitor fat cells. In stage-12 embryos, the 29D-positive cell clusters can be identified within the mesoderm internal to nautilus-expressing cells. These data suggest that the precursor fat cells may be derived from the inner mesoderm, or spanchnopleura. Embryos deficient for the DNA region surrounding the site of the 29D enhancer trap lack most, if not all, of the cells in the fat-cell lineage. These embryos exhibit the loss of svp-positive precursor fat cells and concomitant loss of fat-body-specific expression of Adh and DCg1.(ABSTRACT TRUNCATED AT 400 WORDS)