Abstract On the basis of chromosomal homology, the Amylase gene cluster in Drosophila miranda must be located on the secondary sex chromosome pair, neo-X (X2) and neo-Y, but is autosomally inherited in all other Drosophila species. Genetic evidence indicates no active amylase on the neo-Y chromosome and the X2-chromosomal locus already shows dosage compensation. Several lines of evidence strongly suggest that the Amy gene cluster has been lost already from the evolving neo-Y chromosome. This finding shows that a relatively new neo-Y chromosome can start to lose genes and hence gradually lose homology with the neo-X. The X2-chromosomal Amy1 is intact and Amy2 contains a complete coding sequence, but has a deletion in the 3′-flanking region. Amy3 is structurally eroded and hampered by missing regulatory motifs. Functional analysis of the X2-chromosomal Amy1 and Amy2 regions from D. miranda in transgenic D. melanogaster flies reveals ectopic AMY1 expression. AMY1 shows the same electrophoretic mobility as the single amylase band in D. miranda, while ectopic AMY2 expression is characterized by a different mobility. Therefore, only the Amy1 gene of the resident Amy cluster remains functional and hence Amy1 is the dosage compensated gene.