Coordination between growth and patterning/differentiation is critical if appropriate final organ structure and size is to be achieved. Understanding how these two processes are regulated is therefore a fundamental and as yet incompletely answered question. Here we show through genetic analysis that the phospholipase C-γ (PLC-γ) encoded by small wing (sl) acts as such a link between growth and patterning/differentiation by modulating some MAPK outputs once activated by the insulin pathway; particularly, sl promotes growth and suppresses ectopic differentiation in the developing eye and wing, allowing cells to attain a normal size and differentiate properly. sl mutants have previously been shown to have a combination of both growth and patterning/differentiation phenotypes: small wings, ectopic wing veins, and extra R7 photoreceptor cells. We show here that PLC-γ activated by the insulin pathway participates broadly and positively during cell growth modulating EGF pathway activity, whereas in cell differentiation PLC-γ activated by the insulin receptor negatively regulates the EGF pathway. These roles require different SH2 domains of PLC-γ, and act via classic PLC-γ signaling and EGF ligand processing. By means of PLC-γ, the insulin receptor therefore modulates differentiation as well as growth. Overall, our results provide evidence that PLC-γ acts during development at a time when growth ends and differentiation begins, and is important for proper coordination of these two processes.