The Drosophila Bithorax Complex encodes three well-characterized homeodomain proteins that direct segment identity, as well as several noncoding RNAs of unknown function. Here, we analyze the iab-4 locus, which produces the microRNAs iab-4-5p and iab-4-3p. iab-4 is analogous to miR-196 in vertebrate Hox clusters. Previous studies demonstrate that miR-196 interacts with the Hoxb8 3' untranslated region. Evidence is presented that miR-iab-4-5p directly inhibits Ubx activity in vivo. Ectopic expression of mir-iab-4-5p attenuates endogenous Ubx protein accumulation and induces a classical homeotic mutant phenotype: the transformation of halteres into wings. These findings provide the first evidence for a noncoding homeotic gene and raise the possibility that other such genes occur within the Bithorax complex. We also discuss the regulation of mir-iab-4 expression during development.