INTRODUCTION Members of the Hedgehog family of secreted signaling proteins play crucial roles throughout development (recently reviewed by Ingham and McMahon, 2001). Much of our understanding of the Hedgehog signaling pathway comes from studies on the Drosophila ortholog hedgehog (hh) (Ingham and McMahon, 2001). Drosophila hh plays important roles in patterning the anteroposterior embryonic axis, wing, leg, eye, gut, trachea and gonads, and in the development of the optic lamina (Ingham and McMahon, 2001). This rather global requirement for hh signaling leads to obvious questions about how specific responses are achieved within the receptive cells. For example, in addition to pattern generation, hh signaling is required for cell proliferation (Duman-Scheel et al., 2002; Fan and Khavari, 1999), cell survival (Ahlgren and Bronner-Fraser, 1999; Miao et al., 1997) and cell fate specification (Treier et al., 2001). Despite extensive research, few tissue-specific targets of hh signaling have been uncovered to date in Drosophila. Many of the effects of hh signaling, instead, seem to be mediated by induction of other, widely expressed, secreted signaling molecules, including decapentaplegic (dpp), wingless (wg) and the epidermal growth factor receptor ligand vein (vn) (reviewed by Ingham and McMahon, 2001). Dpp belongs to the transforming growth factor β (TGFβ) superfamily of secreted signaling molecules and has multiple crucial roles throughout Drosophila development (Gelbart, 1989; Spencer et al., 1982). We have previously demonstrated that dpp functions reiteratively in a network to control retinal cell fate determination (Chen et al., 1999). Specifically, dpp signaling appears to synergistically feed into a regulatory network that consists of four genes that encode nuclear proteins: eyeless (ey), eyes absent (eya), sine oculis (so), and dachshund (dac). Several studies suggest that these four genes act in a network to regulate retinal determination. First, each gene is necessary for eye development and loss-of-function mutations in these genes lead to reduced or no eye phenotypes (Bonini et al., 1993; Cheyette et al., 1994; Mardon et al., 1994; Quiring et al., 1994). Second, with the exception of so, each gene is sufficient to induce ectopic eye development (Bonini et al., 1997; Halder et al., 1995; Shen and Mardon, 1997). Finally, the proteins encoded by these genes appear to form complexes to regulate the expression of each other and potential downstream targets (Chen et al., 1997; Halder et al., 1998; Pignoni et al., 1997a). In this study, we have revisited the relationship between hh, dpp and the retinal determination network during Drosophila eye development. The adult Drosophila eye contains between 750 and 800 3053 Development 130, 3053-3062 © 2003 The Company of Biologists Ltd doi:10.1242/dev.00534 Although Hedgehog (Hh) signaling is essential for morphogenesis of the Drosophila eye, its exact link to the network of tissue-specific genes that regulate retinal determination has remained elusive. In this report, we demonstrate that the retinal determination gene eyes absent (eya) is the crucial link between the Hedgehog signaling pathway and photoreceptor differentiation. Specifically, we show that the mechanism by which Hh signaling controls initiation of photoreceptor differentiation is to alleviate repression of eya and decapentaplegic (dpp) expression by the zinc-finger transcription factor Cubitus interruptus (Ci rep ). Furthermore, our results suggest that stabilized, full length Ci (Ci act ) plays little or no role in Drosophila eye development. Moreover, while the effects of Hh are primarily concentration dependent in other tissues, hh signaling in the eye acts as a binary switch to initiate retinal morphogenesis by inducing expression of the tissue-specific factor Eya. Key words: eyes absent, hedgehog, Drosophila, Retinal determination, cubitus interruptus, Photoreceptor, Morphogenetic furrow SUMMARY Mechanism of hedgehog signaling during Drosophila eye development Kartik S. Pappu 1 , Rui Chen 2 , Brooke W. Middlebrooks 3 , Catherine Woo 4 , Ulrike Heberlein 5 and Graeme Mardon 1,2,3,6,7, * 1 Program in Developmental Biology, Baylor College of Medicine, One Baylor Plaza, Houston, TX 77030, USA 2 Department of Molecular and Human Genetics, Baylor College of Medicine, One Baylor Plaza, Houston, TX 77030, USA 3 Department of Pathology, Baylor College of Medicine, One Baylor Plaza, Houston, TX 77030, USA 4 Biomedical Initiatives, University-wide AIDS Research Program, University of California Office of the President, 300 Lakeside Drive, 6th Floor, Oakland, CA 94612, USA 5 Department of Anatomy, University of California San Francisco, Box 0452, 513 Parnassus, San Francisco, CA 94143-0452, USA 6 Department of Ophthalmology, Baylor College of Medicine, One Baylor Plaza, Houston, TX 77030, USA 7 Department of Neuroscience, Baylor College of Medicine, One Baylor Plaza, Houston, TX 77030, USA *Author for correspondence (e-mail: gmardon@bcm.tmc.edu) Accepted 27 March 2003