Drosophila heterochromatin-associated protein 1 (HP1) is an abundant component of heterochromatin, a highly condensed compartment of the nucleus that comprises a major fraction of complex genomes. Some organisms have been shown to harbor multiple HP1-like proteins, each exhibiting spatially distinct localization patterns within interphase nuclei. We have characterized the subnuclear localization patterns of two newly discovered Drosophila HPI-like proteins (HP1b and HP1c), comparing them with that of the originally described fly HPI protein (here designated HP1a). While HP1a targets heterochromatin, HP1b localizes to both heterochromatin and euchromatin and HP1c is restricted exclusively to euchromatin. All HP1-like proteins contain an amino-terminal chrome domain, a connecting hinge, and a carboxyl-terminal chrome shadow domain. We expressed truncated and chimeric HP1 proteins in vivo to determine which of these segments might be responsible for heterochromatin-specific and euchromatin-specific localization. Both the HP1a hinge and chrome shadow domain independently target heterochromatin, while the HP1c chrome shadow domain is implicated solely in euchromatin localization. Comparative sequence analyses of HP1 homologs reveal a conserved sequence block within the hinge that contains an invariant sequence (KRK) and a nuclear localization motif. This block is not conserved in the HP1c hinge, possibly accounting for its failure to function as an independent targeting segment. We conclude that sequence variations within the hinge and shadow account for HP1 targeting distinctions. We propose that these targeting features allow different HP1 complexes to be distinctly sequestered in organisms that harbor multiple HP1-like proteins.