Throughout metazoan development cells select pathways of specialization that lead to the differentiation of specific cell types. Differential gene activation converts initially homogeneous populations of cells into spatial arrangements of diverse cell types. As discussed in other articles in this issue, the signals specifying divergent pathways can be encoded in a cell's lineage, its environment, or a combination of both. This article reviews recent analyses of the developing Drosophila compound eye which have focussed upon the mechanisms by which cells assess environmental information in order to determine their fate. More specifically, it examines the molecular mechanisms used by cells to communicate signals which instruct the developmental pathways of other cells.