Several organisms, including Drosophila melanogaster, are apparently devoid of DNA methylation. This might reflect a highly restricted activity of DNA methyltransferases, a loss of methyltransferase activity during evolution or the dispensability of DNA methylation due to an efficient substitute mechanism. Vestiges of a Drosophila DNA methylation system have been identified recently. We show here that the putative DNA methyltransferase gene, dDnmt2, is the component of a transposon-like element. This element also contains a second, novel open reading frame with homologies to a yeast protein involved in RNA processing. Both open reading frames are coordinately expressed and transcripts are present specifically in ovarian nurse cells as well as during early stages of embryonic development.