Embryos of the brine shrimp, Artemia franciscana, either develop directly into swimming larvae or are released from females as encysted gastrulae (cysts) which enter diapause, a reversible state of dormancy. Metabolic activity in diapause cysts is very low and these embryos are remarkably resistant to physiological stresses. Encysting embryos, but not those undergoing uninterrupted development, synthesize large amounts of two proteins, namely p26 and artemin. Cloning and sequencing demonstrated p26 is a small heat shock/alpha-crystallin protein while artemin has structural similarity to ferritin. p26 exhibits molecular chaperone activity in vitro, moves reversibly into nuclei during stress and confers thermotolerance on transformed organisms, suggesting critical roles in cyst development. The function of artemin is unknown. Encysted Artemia also contain an abundance of trehalose, a disaccharide capable of protecting embryos. Artemia represent a novel experimental system where the developmental functions of small heat shock/alpha-crystallin proteins and other stress response elements can be explored.