Sequence conservation between species is useful both for locating coding regions of genes and for identifying functional noncoding segments. Hence interspecies alignment of genomic sequences is an important computational technique. However, its utility is limited without extensive annotation. We describe a suite of software tools, PipTools, and related programs that facilitate the annotation of genes and putative regulatory elements in pairwise alignments. The alignment server PipMaker uses the output of these tools to display detailed information needed to interpret alignments. These programs are provided in a portable format for use on common desktop computers and both the toolkit and the PipMaker server can be found at our Web site (http//bio.cse.psu.edu/). We illustrate the utility of the toolkit using annotation of a pairwise comparison of the mouse MHC class II and class III regions with orthologous human sequences and subsequently identify conserved, noncoding sequences that are DNase I hypersensitive sites in chromatin of mouse cells.