Many proteins with novel functions were created by exon shuffling around the time of the metazoan radiation. Phospholipase C-gamma (PLC-gamma) is typical of proteins that appeared at this time, containing several different modules that probably originated elsewhere. To gain insight into both PLC-gamma evolution and structure-function relationships within the Drosophila PLC-gamma encoded by small wing (sl), we cloned and sequenced the PLC-gamma homologs from Drosophila pseudoobscura and D. virilis and compared their gene structure and predicted amino acid sequences with PLC-gamma homologs in other animals. PLC-gamma has been well conserved throughout, although structural differences suggest that the role of tyrosine phosphorylation in enzyme activation differs between vertebrates and invertebrates. Comparison of intron positions demonstrates that extensive intron loss has occurred during invertebrate evolution and also reveals the presence of conserved introns in both the N- and C-terminal PLC-gamma SH2 domains that are present in SH2 domains in many other genes. These and other conserved SH2 introns suggest that the SH2 domains in PLC-gamma are derived from an ancestral domain that was shuffled not only into PLC-gamma, but also into many other unrelated genes during animal evolution.