Initiation of Drosophila peripheral nervous system (PNS) development requires the achaete-scute complex (AS-C) and the atonal (ato) genes. The AS-C and ato encode basic helix-loop-helix (bHLH) transcription factors that dimerize in vitro with another bHLH protein, daughterless (da). da has many functions during Drosophila embryonic development, as it is required for proper sex determination, oogenesis, and neurogenesis. Here, we examine the expression and function of da within the developing Drosophila eye. The use of a monoclonal antibody to the Da protein revealed that Da levels are modulated across the developing eye disc. Within the morphogenetic furrow (MF) and photoreceptor cell R8, there is a cell-by-cell correspondence between high levels of Da protein expression and Ato protein expression. Mosaic analysis of adult tissue demonstrates that da function is cell autonomous and required within R2, R3, R4, R5, and R8. Examination of gene expression in da- imaginal disc clones reveals that da regulates Ato expression in the MF, affects the progression of the MF, and is necessary for the reestablishment of the G2 and M phases of the synchronized cell cycle posterior to the MF.