The cellular functions of the Drosophila src 64B (Dsrc) gene product, Dsrc, and of most vertebrate Src-family kinases, are unknown. We have examined the effects of over-expression of wild type and mutated forms of Dsrc in transgenic Drosophila. Expression of both wild type Dsrc and a C-terminally truncated mutant at high levels during embryonic development induced extensive tyrosine phosphorylation of cellular proteins and caused considerable lethality, correlating with a block to germ-band retraction. Over-expression in the eye imaginal disc led to excess production of photoreceptor cells in the adult ommatidia. In contrast, expression of a kinase-inactive form of Dsrc caused distinct nervous system abnormalities in embryos and decreased the numbers of photoreceptor cells in the adult eye ommatidia. This suggests that active forms of Dsrc alter development by phosphorylation. Both the lethality and the eye roughening caused by activated Dsrc were partially suppressed by mutations in the Drosophila Ras1 gene. These results suggest that over-expressed Dsrc may function through Ras1 to stimulate differentiation in the embryonic nervous system and eye imaginal disc, and that kinase-active Dsrc interferes with these processes.