Recent studies have demonstrated that Z-DNA exists in vivo in Escherichia coli as well as in Drosophila and mammalian cells. In the present paper, we show the existence in vivo of Z-DNA epitopes in the developmentally regulated subregion 4-75C of polytene chromosomes in Drosophila hydei. The Z-DNA epitopes were detected in subdivision C2 only during late third instar when the transcriptional activity of the locus was high. Accumulation of nonhistone chromosomal proteins in that locus was also detected during late third instar only at the time of the Z-DNA formation. Northern blot data and nucleotide sequence analysis indicated that the Z-DNA-forming sequence is located between two transcription units whose expression is regulated during the third instar. Our results suggest that in subdivision 4-75C2 a B- to Z-DNA flux occurs at a specific time during late third instar and that this flux may play a negative as well as a positive role in gene expression.