A study of polymorphism and species divergence of the dpp gene of Drosophila has been made. Eighteen lines from a population of D. melanogaster were sequenced for 5200 bp of the Hin region of the gene, coding for the dpp polypeptide. A comparison was made with sequence from D. simulans. Ninety-six silent polymorphisms and three amino acid replacement polymorphisms were found. The overall silent polymorphism (0.0247) is low, but haplotype diversity (0.0066 for effectively silent sites and 0.0054 for all sites) is in the range found for enzyme loci. Amino acid variation is absent in the N-terminal signal peptide, the C-terminal TGF-beta peptide and in the N-terminal half of the pro-protein region. At the nucleotide level there is strong conservation in the middle half of the large-intron and in the 3' untranslated sequence of the last exon. The 3' untranslated conservation, which is perfect for 110 bp among all the divergent species, is unexplained. There is strong positive linkage disequilibrium among polymorphic sites, with stretches of apparent gene conversion among originally divergent sequences. The population apparently is a migration mixture of divergent clades.