Evolutionary novelty, the appearance of new traits with no existing homology, is central to the adaptive radiation of new species. Novel traits inform our understanding of development and how developmental mechanisms can generate novelties. Sepsid flies (Diptera: Sepsidae) have a sexually dimorphic, jointed appendage used for courtship and mating. The appendage develops from the fourth abdominal histoblast nest rather than an imaginal disc. Histoblast nests in other species produce the adult epidermis and lack three-dimensional organization. The sepsid system is an opportunity to investigate the evolutionary history of a novel trait and the developmental mechanisms that pattern epidermal tissue into a complex structure. The appendage has a complex history of gain, loss, and recovery over evolutionary time. Appendage morphology is highly variable between species and does not correlate to body size. I collected larval epidermal tissue from 16 species across Sepsidae and one outgroup to trace the evolutionary history of gain, secondary loss, and recovery. I characterized histoblast nests in all segments and sexes, determining the nest size, number, and size of cells. The appendage-producing nest is sexually dimorphic in species after primary gain. Loss of the appendage shows a return to ancestral state while regain shows an increase in nest size in both sexes. The loss of sex dimorphism may indicate that mechanisms involved in specification may be active in females while genes involved in patterning are not activated during pupation. I assembled and annotated a reference transcriptome for the sepsid Themira biloba at using a custom bioinformatic pipeline that uses a merged assembly approach to maximize quality. This pipeline demonstrated an improvement over other methodologies using multiple published metrics for determining quality and completion. This pipeline also demonstrates how cloud computing architecture can complete bioinformatic tasks quickly and at low cost. I used the T. biloba transcriptome to identify differentially expressed genes involved in appendage patterning during pupation. I sequenced the appendage producing fourth male larval segment and the third male and fourth female segments. Many of the differentially expressed transcripts are involved in cell signaling, epidermal growth, and transcripts involved morphological development in other species.