Histone-tail modifications play a fundamental role in the processes that establish chromatin structure and determine gene expression. One such modification, histone methylation, was considered irreversible until the recent discovery of histone demethylases. Lsd1 was the first histone demethylase to be identified. Lsd1 is highly conserved in many species, from yeast to humans, but its function has primarily been studied through biochemical approaches. The mammalian ortholog has been shown to demethylate monomethyl- and dimethyl-K4 and -K9 residues of histone H3. Here we describe the effects of Lsd1 mutation in Drosophila. The inactivation of dLsd1 strongly affects the global level of monomethyl- and dimethyl-H3-K4 methylation and results in elevated expression of a subset of genes. dLsd1 is not an essential gene, but animal viability is strongly reduced in mutant animals in a gender-specific manner. Interestingly, dLsd1 mutants are sterile and possess defects in ovary development, indicating that dLsd1 has tissue-specific functions. Mutant alleles of dLsd1 suppress positional-effect variegation, suggesting a disruption of the balance between euchromatin and heterochromatin. Taken together, these results show that dLsd1-mediated H3-K4 demethylation has a significant and specific role in Drosophila development.