The developing compound eye of the fruit fly, Drosophila offers notable advantages for a study of neural differentiation. It is a sensitive amplifier of a simple neural module; each eye is an approximately 700-fold repetition of the unit eye or ommatidium, which is a precise, stereotyped assembly of photoreceptors and accessory cells. The eye develops in a monolayer epithelium, which greatly reduces the complexities of cell-cell interactions often encountered in CNS development, and has permitted a detailed, cell-by-cell description of cell behavior during ommatidial development. Finally, the foundation of fly genetics permits a mutational analysis of eye development and the advanced molecular genetics of Drosophila allows close scrutiny of genes of interest. A recent convergence of cellular, genetic and molecular studies of ommatidial development suggests a model for neural differentiation in the fly eye.