Analysis of retinal development in Delta (Dl) temperature-sensitive mutants reveals requirements for Delta function in the specification of all retinal cells, including photoreceptors, cone cells, pigment cells and cells that make up interommatidial bristles. In situ hybridization and immunohistochemistry indicate that Delta is expressed dynamically during the specification of different cell types. Comparisons of Delta expression patterns with developmental defects in Dl mutants implies that Delta functions in a cell-nonautonomous manner in the specification of photoreceptors. Delta protein resides predominantly in subcellular vesicles located primarily at the apical ends of developing retinal cells. Localization of Delta protein in Dl and shibire tsl mutants implies that Delta is targeted to the cell surface, but is efficiently removed via endocytosis, resulting in vesicular accumulation.