We report loss- and gain-of-function analyses that identify essential roles in development for Drosophila transcription factor AP-2. A mutagenesis screen yielded 16 lethal point mutant alleles of dAP-2. Null mutants die as adults or late pupae with a reduced proboscis, severely shortened legs (approximately 30% of normal length) lacking tarsal joints, and disruptions in the protocerebral central complex, a brain region critical for locomotion. Seven hypomorphic alleles constitute a phenotypic series yielding hemizygous adults with legs ranging from 40-95% of normal length. Hypomorphic alleles show additive effects with respect to leg length and viability; and several heteroallelic lines were established. Heteroallelic adults have moderately penetrant defects that include necrotic leg joints and ectopic growths (sometimes supernumerary antennae) invading medial eye territory. Several dAP-2 alleles with DNA binding domain missense mutations are null in hemizygotes but have dominant negative effects when paired with hypomorphic alleles. In wild-type leg primordia, dAP-2 is restricted to presumptive joints. Ectopic dAP-2 in leg discs can inhibit but not enhance leg elongation indicating that functions of dAP-2 in leg outgrowth are region restricted. In wing discs, ectopic dAP-2 cell autonomously transforms presumptive wing vein epithelium to ectopic sensory bristles, consistent with an instructive role in sensory organ development. These findings reveal multiple functions for dAP-2 during morphogenesis of feeding and locomotor appendages and their neural circuitry, and provide a new paradigm for understanding AP-2 family transcription factors.