AbstractDeep learning architectures such as variational autoencoders have revolutionized the analysis of transcriptomics data. However, the latent space of these variational autoencoders offers little to no interpretability. To provide further biological insights, we introduce a novel sparse Variational Autoencoder architecture, VEGA (VAE Enhanced by Gene Annotations), whose decoder wiring mirrors user-provided gene modules, providing direct interpretability to the latent variables. We demonstrate the performance of VEGA in diverse biological contexts using pathways, gene regulatory networks and cell type identities as the gene modules that define its latent space. VEGA successfully recapitulates the mechanism of cellular-specific response to treatments, the status of master regulators as well as jointly revealing the cell type and cellular state identity in developing cells. We envision the approach could serve as an explanatory biological model for development and drug treatment experiments.