Ethanol is an important environmental variable for fruit-breeding Drosophila species, serving as a resource at low levels and a toxin at high levels. The first step of ethanol metabolism, the conversion of ethanol to acetaldehyde, is catalyzed primarily by the enzyme alcohol dehydrogenase (ADH). The second step, the oxidation of acetaldehyde to acetate, has been a source of controversy, with some authors arguing that it is carried out primarily by ADH itself, rather than a separate aldehyde dehydrogenase (ALDH) as in mammals. We review recent evidence that ALDH plays an important role in ethanol metabolism in Drosophila. In support of this view, we report that D. melanogaster populations maintained on ethanol-supplemented media evolved higher activity of ALDH, as well as of ADH. We have also tentatively identified the structural gene responsible for the majority of ALDH activity in D. melanogaster. We hypothesize that variation in ALDH activity may make an important contribution to the observed wide variation in ethanol tolerance within and among Drosophila species.