Drosophila Little imaginal discs (Lid) is a recently described member of the JmjC domain class of histone demethylases that specifically targets trimethylated histone H3 lysine 4 (H3K4me3). To understand its biological function, we have utilized a series of Lid deletions and point mutations to assess the role that each domain plays in histone demethylation, in animal viability, and in cell growth mediated by the transcription factor dMyc. Strikingly, we find that lid mutants are rescued to adulthood by either wildtype or enzymatically inactive Lid expressed under the control of its endogenous promoter, demonstrating that Lid's demethylase activity is not essential for development. In contrast, ubiquitous expression of UAS-Lid transgenes lacking its JmjN, C-terminal PHD domain, and C₅HC₂ zinc finger were unable to rescue lid homozygous mutants, indicating that these domains carry out Lid's essential developmental functions. Although Lid-dependent demethylase activity is not essential, dynamic removal of H3K4me3 may still be an important component of development, as we have observed a genetic interaction between lid and another H3K4me3 demethylase, dKDM2. We also show that Lid's essential C-terminal PHD finger binds specifically to di- and trimethylated H3K4 and that this activity is required for Lid to function in dMyc-induced cell growth. Taken together, our findings highlight the importance of Lid function in the regulated removal and recognition of H3K4me3 during development.