The blood-brain barrier of Drosophila is established by the subperineurial glial cells that encase the CNS and PNS. The subperineurial glial cells are thin, highly interdigitated cells with epithelial character. The establishment of extensive septate junctions between these cells is crucial for the prevention of uncontrolled paracellular leakage of ions and solutes from the hemolymph into the nervous system. In the absence of septate junctions, macromolecules such as fluorescently labeled dextran can easily cross the blood-brain barrier. To identify additional components of the blood-brain barrier, we followed a genetic approach and injected Texas-Red-conjugated dextran into the hemolymph of embryos homozygous for chromosomal deficiencies. In this way, we identified the 153-aa-large protein Coiled, a new member of the Ly6 (leukocyte antigen 6) family, as being crucially required for septate junction formation and blood-brain barrier integrity. In coiled mutants, the normal distribution of septate junction markers such as NeurexinIV, Coracle, or Discs large is disturbed. EM analyses demonstrated that Coiled is required for the formation of septate junctions. We further show that Coiled is expressed by the subsperineurial glial cells in which it is anchored to the cell membrane via a glycosylphosphatidylinositol anchor and mediates adhesive properties. Clonal rescue studies indicate that the presence of Coiled is required symmetrically on both cells engaged in septate junction formation.