Determination of cell fate in the developing eye of Drosophila depends on a precise sequence of cellular interactions which generate the stereotypic array of ommatidia. In the eye imaginal disc, an initially unpatterned epithelial sheath of cells, the first step in this process may be the specification of R8 photoreceptor cells at regular intervals. Genes such as Notch and scabrous, known to be involved in bristle development, also participate in this process, suggesting that the specification of ommatidial founder cells and the formation of sensory organs in the adult epidermis may involve a similar mechanism, that of lateral inhibition. The subsequent steps of ommatidial assembly, following R8 assignment, involve a different mechanism: Undetermined cells read their position based on the contacts they make with neighbors that have already begun to differentiate. The development of the R7 photoreceptor cell, one of the eight photoreceptor cells in the ommatidium, is best understood. An important role seems to be played by sevenless, a receptor tyrosine kinase on the surface of the R7 precursor. It transmits the positional information--most likely encoded by the boss protein on the neighboring R8 cell membrane--into the cell via its tyrosine kinase, which activates a signal transduction cascade. Constitutive activation of the sevenless kinase by overexpression of an N-terminally truncated form results in the diversion of other ommatidial cells into the R7 pathway suggesting that activation of the sevenless signalling pathway is sufficient to specify R7 development. Genetic dissection of this pathway should therefore identify components of a signalling cascade activated by a tyrosine kinase.