Investigation of a modifier locus displaying a darker eye phenotype in white-apricot flies led to the isolation of the gene encoding UDP-glucose dehydrogenase (UDPGDH). The P-element insertion l(3)05007 occurs upstream of the transcription start site of the sugarless (sgl) gene and greatly reduces its transcription at various developmental stages. A single abundant sgl transcript shows a ubiquitous distribution and encodes a 53-kDa protein which is 64% identical in sequence to bovine UDP-glucose dehydrogenase. Overexpression of sgl in E. coli resulted in synthesis of a protein with high levels of UDPGDH activity. Expression of three genes that participate in pigment deposition, white, scarlet and brown, was significantly affected in populations segregating for sgl, suggesting that it is the decrease in UDPGDH level that produces the modifying effect observed. In addition, genetic effects on white-apricot were observed in sgl-wingless and sgl-hedgehog double mutants. Recent data have indicated an effect of UDPGDH on cell surface glycosaminoglycans (GAGs) which modulate the activity of growth factors, and in particular wingless signaling. Our results suggest that the levels of GAGs are rate limiting for cell-cell signaling pathways which mediate changes in gene expression.