The determination of cell fates during the assembly of the ommatidia in the compound eye of Drosophila appears to be controlled by cell-cell interactions. In this process, the sevenless gene is essential for the development of a single type of photoreceptor cell. In the absence of proper sevenless function the cells that would normally become the R7 photoreceptors instead become nonneuronal cells. Previous morphological and genetic analysis has indicated that the product of the sevenless gene is involved in reading or interpreting the positional information that specifies this particular developmental pathway. The sevenless gene has now been isolated and characterized. The data indicate that sevenless encodes a transmembrane protein with a tyrosine kinase domain. This structural similarity between sevenless and certain hormone receptors suggests that similar mechanisms are involved in developmental decisions based on cell-cell interaction and physiological or developmental changes induced by diffusible factors.