One of the major issues in developmental biology is about having a better understanding of the mechanisms that regulate organ growth. Identifying these mechanisms is essential to understand the development processes that occur both in physiological and pathological conditions, such as cancer. The E protein family of basic helix-loop helix (bHLH) transcription factors, and their inhibitors the Id proteins, regulate cell proliferation in metazoans. This notion is further supported because the activity of these factors is frequently deregulated in cancerous cells. The E protein orthologue Daughterless (Da) and the Id orthologue Extramacrochaetae (Emc) are the only members of these classes of bHLH proteins in Drosophila. Although these factors are involved in controlling proliferation, the mechanism underlying this regulatory activity is poorly understood. Through a genetic analysis, we show that during the development of epithelial cells in the imaginal discs, the G2/M transition, and hence cell proliferation, is controlled by Emc via Da. In eukaryotic cells, the main activator of this transition is the Cdc25 phosphatase, string. Our genetic analyses reveal that the ectopic expression of string in cells with reduced levels of Emc or high levels of Da is sufficient to rescue the proliferative defects seen in these mutant cells. Moreover, we present evidence demonstrating a role of Da as a transcriptional repressor of string. Taken together, these findings define a mechanism through which Emc controls cell proliferation by regulating the activity of Da, which transcriptionally represses string.