The kurtz gene encodes a novel nonvisual arrestin. krz is located at the most-distal end of the chromosome 3R, the third gene in from the telomere. krz is expressed throughout development. During early embryogenesis, krz is expressed ubiquitously and later is localized to the central nervous system, maxillary cirri, and antennal sensory organs. In late third instar larvae, krz message is detected in the fat bodies, the ventral portion of the thoracic-abdominal ganglia, the deuterocerebrum, the eye-antennal imaginal disc, and the wing imaginal disc. The krz(1) mutation contains a P-element insertion within the only intron of this gene and results in a severe reduction of function. Mutations in krz have a broad lethal phase extending from late embryogenesis to the third larval instar. The fat bodies of krz(1) larva precociously dissociate during the midthird instar. krz(1) is a type 1 melanotic tumor gene; the fat body is the primary site of melanotic tumor formation during the third instar. We have functionally rescued these phenotypes with both genomic and cDNA transgenes. Importantly, the expression of a full-length krz cDNA within the CNS rescues the krz(1) lethality. These experiments establish the krz nonvisual arrestin as an essential neural gene in Drosophila.