The steroidal moulting hormones (ecdysteroids) mediate developmental transitions in insects, and their regulation is mainly controlled by the production and inactivation of these steroid hormones at the appropriate developmental times. One route of metabolism of ecdysteroids in insects involves EO (ecdysone oxidase)-catalysed conversion into 3-dehydroecdysteroid, which undergoes reduction to the corresponding 3-epiecdysteroid. By a twin-stranded bioinformatics approach, employing both phylogenomics and model structure-based analysis, we first predicted that DmEO (the EO of Drosophila melanogaster) corresponds to the protein product of gene CG9504. When CG9504 was expressed in COS7 cells, significant conversion of ecdysone into 3-dehydroecdysone was observed. Quantitative PCR and enzyme assay showed that DmEO was mainly expressed in the midgut during the late instars at a time corresponding to a hormone titre peak. DmEO shares only 27% amino acid sequence identity with Spodoptera littoralis (Lepidoptera) EO, yet key substrate-binding residues are well conserved. A model of DmEO is consistent with an inability to catalyse reaction of cholesterol derivatives. The significance of DmEO in ligand activation is discussed in relation to new evidence suggesting that 3-dehydro- and 3-epiecdysteroids may be functionally active as ligands in a novel, atypical ecdysteroid signalling pathway involving the Drosophila orphan nuclear receptor, DHR38, rather than being merely hormone inactivation products.