In a screen for genes that interact with the Rap1 GTPase, we have identified a Drosophila gene, dacapo (dap), which is a member of the p21/p27 family of cdk inhibitors. Unlike mammalian cdk inhibitors studied to date, dap is essential for normal embryonic development. Dacapo inhibits cyclin-cdk activity in vitro. Overexpressing dap during eye development interferes with cell cycle progression and interacts genetically with the retinoblastoma homolog (Rbf) and cyclin E. dap expression in embryos parallels the exit of cells from the cell cycle. dap mutant embryos delay the normal cell cycle exit during development; many cells complete an additional cycle and subsequently become quiescent. Thus, dap functions during embryogenesis to achieve a precisely timed exit from the cell cycle.