The genetic control of segmentation in the Drosophila larval head has been only partially elucidated. We report that the knot (kn) gene of Drosophila is required for the formation of the hypopharyngeal lobe in the germ-band stage embryo and the ventral arms and lateralgräte of the larval head skeleton. Rearrangement mutations of knot disrupt the previously characterized gene, collier, which encodes a COE-family transcription factor. kn is required for the activation of cnc (cap'n'collar, a bZIP homeotic selector gene) in the progenitors of hypopharyngeal lobe. kn is also required for the activation of an EST marker for the cephalic mesoderm, CK01299. Based on the relative expression of kn and the posterior compartment-specific gene hedgehog, we provide additional evidence that in Drosophila, unlike many other insects, the hypopharyngeal lobe arises from part of the mandibular segment.