The Drosophila seven-up (svp) gene was isolated as a lethal insertion in an "enhancer trap" screen. It is expressed and required in photoreceptor cell precursors R1, R3, R4, and R6 during eye development. The absence of svp+ function causes a transformation of these cells toward an R7 cell fate, as judged by morphology and expression of an R7-specific marker. This transformation depends in part on the sevenless gene product. Our results show that svp is involved in control of cell fate during the generation of neuronal diversity. Molecular analysis of svp reveals that it is a member of the steroid receptor gene superfamily and is likely to be a Drosophila homolog of the human transcription factor COUP.