Photoreceptor induction in the Drosophila eye is mediated by activation of the Ras signal transduction cascade. Although this process is well understood, little is known about how the diversity of photoreceptor subtypes is generated. The pipsqueak (psq) gene is expressed at high levels in the R3/R4 precursors during eye development and this expression depends on seven-up (svp) gene function. Moreover, strong psq alleles are dominant suppressors of a svp-induced cone cell transformation phenotype. Although the gene was previously identified and described as a member of the maternal posterior group of genes, the strong semilethal alleles isolated here demonstrate a specific requirement for psq function downstream of svp for the development of photoreceptors R3/R4. The gene has three independent 5' ends and codes for several nuclear protein isoforms, some containing the POZ domain which has been implicated in protein-protein interactions. Interestingly, all viable alleles with a maternal posterior group phenotype cluster around one specific 5' exon, while all semilethal alleles have lesions which map to a different alternative 5' exon.