The hairy (h) gene is one of two pair-rule loci whose striped expression is directly regulated by combinations of gap proteins acting through discrete upstream regulatory fragments, which span several kilobases. We have undertaken a comparative study of the molecular biology of h pair-rule expression in order to identify conserved elements in this complex regulatory system, which should provide important clues concerning the mechanism of stripe formation. A molecular comparison of the h locus in Drosophila virilis and Drosophila melanogaster reveals a conserved overall arrangement of the upstream regulatory elements that control individual pair-rule stripes. We demonstrate that upstream fragments from D. virilis will direct the proper expression of stripes in D. melanogaster, indicating that these are true functional homologs of the stripe-producing D. melanogaster regulatory elements, and that the network of trans-acting proteins that act upon these regulatory elements is highly conserved. We also demonstrate that the spatial relationships between specific h stripes and selected gap proteins are highly conserved. We find several tracts of extensive nucleotide sequence conservation within homologous stripe-specific regulatory fragments, which have facilitated the identification of functional subelements within the D. melanogaster regulatory fragment for h stripe 5. Some of the conserved nucleotide tracts within this regulatory fragment contain consensus binding sites for potential trans-regulatory (gap and other) proteins, while many appear devoid of known binding sites. This comparative approach, coupled with the analysis of reporter gene expression in gap mutant embryos suggests that the Kr and gt proteins establish the anterior and posterior borders of h stripe 5, respectively, through spatial repression. Other, as yet unidentified, proteins are certain to play a role in stripe activation, presumably acting through other conserved sequence tracts.