Synthetic mRNA precursors from the Drosophila fushi tarazu (ftz) gene were shown to be accurately and efficiently spliced in Drosophila nuclear extracts derived from Kc tissue culture cells or 0- to 12-hr embryos. Splicing the ftz pre-mRNA requires ATP and low levels of Mg2+. The reaction proceeds with a lag of 20-30 min prior to appearance of spliced mRNA and appears to proceed in two steps. The first step is cleavage at the 5' splice site to generate a 5' exon (E1) fragment and an intron-3' exon (IVS-E2) species. The second step involves cleavage at the 3' splice site, ligation of the two exons (E1-E2), and intron (IVS) release. The excised intron (IVS) and intron-3' exon (IVS-E2) exhibit anomalous electrophoretic mobility, suggesting that they contain branched structures. Nuclease analysis using two-dimensional thin-layer chromatography indicates that both the IVS and IVS-E2 species possess branched trinucleotides in which a guanosine residue at the 5' end of the intron is linked in a 2'-5' phosphodiester bond to the 2' hydroxyl group of an adenosine residue in the intron. The site of branchpoint formation was localized by debranching the Drosophila lariat with mammalian (HeLa) cell debranching enzyme and by P1 and T2 nuclease analysis. These findings indicate that nuclear extracts derived from Drosophila cultured cells or embryos can accurately splice mRNA precursors and that the reaction mechanism is the same as has been observed in yeast and mammalian cells. This system provides an initial step toward the biochemical analysis of developmentally regulated pre-mRNA splicing events in Drosophila.