The Drosophila decapentaplegic (dpp) gene, a member of the transforming growth factor beta superfamily of growth factors, is critical for specification of the embryonic dorsal-ventral axis, for proper formation of the midgut, and for formation of Drosophila adult structures. The Drosophila tolloid gene has been shown to genetically interact with dpp. The genetic interactions between tolloid and dpp suggests a model in which the tolloid protein participates in a complex containing the DPP ligand, its protease serving to activate DPP, either directly or indirectly. We report here the identification and cloning of another Drosophila member of the tolloid/bone morphogenic protein (BMP) 1 family, tolkin, which is located 700 bp 5' to tolloid. Its overall structure is like tolloid, with an N-terminal metalloprotease domain, five complement subcomponents C1r/C1s, Uegf, and Bmp1 (CUB) repeats and two epidermal growth factor (EGF) repeats. Its expression pattern overlaps that of tolloid and dpp in early embryos and diverges in later stages. In larval tissues, both tolloid and tolkin are expressed uniformly in the imaginal disks. In the brain, both tolloid and tolkin are expressed in the outer proliferation center, whereas tolkin has another stripe of expression near the outer proliferation center. Analysis of lethal mutations in tolkin indicate it is vital during larval and pupal stages. Analysis of its mutant phenotypes and expression patterns suggests that its functions may be mostly independent of tolloid and dpp.