We have identified in the 5' untranslated region of the Drosophila copia retrotransposon, 3' to the left LTR, a sequence for transcriptional regulation by homeoproteins. Co-transfection assays using expression vectors for homeoproteins and reporter vectors containing the lacZ gene under the control of either the entire copia LTR with 5' untranslated sequence, or a minimal heterologous promoter flanked with a 130 bp fragment containing the copia untranslated region, disclosed both positive and negative modulations of promoter activity in Drosophila cells in culture: a 5-10 fold decrease with engrailed, even-skipped and zerknüllt in DH33 cells, and a 10-30 fold increase with fushi tarazu and zerknüllt in Schneider II cells. In all cases, the regulatory effects were abolished with reporter plasmids deleted for a 58 bp fragment encompassing the putative homeoprotein binding sites. Mobility shift assays with a purified homeodomain-containing peptide demonstrated direct interaction with the 58 bp fragment, with an affinity in the 1-10 nM range as reported with the same peptide for other well characterized homeodomain binding regulatory sites. Foot-printing experiments with the extended LTR demonstrated protection of 'consensus' sequences, located within the 58 bp fragment. These homeodomain binding sites could be involved in the developmental regulation of the copia retrotransposon.