Several observations suggest that developing ommatidia in the Drosophila eye have distinct dorsal-ventral (d-v) positional identities, despite their morphological uniformity. To identify molecular differences along the d-v axis of the eye, we carried out a systematic screen for P-element insertions that show nonuniform reporter gene expression along this axis. We identified P-element insertions in which lacZ expression is activated in dorsal, ventral, or equatorial regions of the disc. These patterns of transcriptional enhancer activity are established early in disc development and are maintained in a size invariant manner during disc growth. Several insertions with an equatorial-to-polar gradient of lacZ expression disrupt the four-jointed (fj) gene which is required for proper leg, wing, and eye development. The fj cDNA sequence includes a presumptive internal signal sequence, indicating that fj encodes a cell surface or secreted protein. Analysis of the fj phenotype and expression pattern in the leg suggests that fj is required for cell-cell signaling during disc development.