Turnover of regulatory sequence and function is an important part of molecular evolution. But what are the modes of sequence evolution leading to rapid formation and loss of regulatory sites? Here we show that a large fraction of neighboring transcription factor binding sites in the fly genome have formed from a common sequence origin by local duplications. This mode of evolution is found to produce regulatory information: duplications can seed new sites in the neighborhood of existing sites. Duplicate seeds evolve subsequently by point mutations, often towards binding a different factor than their ancestral neighbor sites. These results are based on a statistical analysis of 346 cis-regulatory modules in the Drosophila melanogaster genome, and a comparison set of intergenic regulatory sequence in Saccharomyces cerevisiae. In fly regulatory modules, pairs of binding sites show significantly enhanced sequence similarity up to distances of about 50 bp. We analyze these data in terms of an evolutionary model with two distinct modes of site formation: (i) evolution from independent sequence origin and (ii) divergent evolution following duplication of a common ancestor sequence. Our results suggest that pervasive formation of binding sites by local sequence duplications distinguishes the complex regulatory architecture of higher eukaryotes from the simpler architecture of unicellular organisms.