The argos gene encodes a protein that is required for viability and that regulates the determination of cells in the Drosophila eye. A developmental analysis of argos mutant eyes indicates that the mystery cells, which are usually nonneuronal, are transformed into extra photoreceptors, and that supernumerary cone cells and pigment cells are also recruited. Clonal analysis indicates that argos acts nonautonomously and can diffuse over the range of several cell diameters. Conceptual translation of the argos gene suggests that it encodes a secreted protein.