Many animal and plant genomes are transcribed much more extensively than current annotations predict. However, the biological function of these unannotated transcribed regions is largely unknown. Approximately 7% and 23% of the detected transcribed nucleotides during D. melanogaster embryogenesis map to unannotated intergenic and intronic regions, respectively. Based on computational analysis of coordinated transcription, we conservatively estimate that 29% of all unannotated transcribed sequences function as missed or alternative exons of well-characterized protein-coding genes. We estimate that 15.6% of intergenic transcribed regions function as missed or alternative transcription start sites (TSS) used by 11.4% of the expressed protein-coding genes. Identification of P element mutations within or near newly identified 5′ exons provides a strategy for mapping previously uncharacterized mutations to their respective genes. Collectively, these data indicate that at least 85% of the fly genome is transcribed and processed into mature transcripts representing at least 30% of the fly genome.