The promoters of Drosophila genes encoding DNA replication-related proteins contain transcription regulatory element DRE (5'-TATCGATA) in addition to E2F recognition sites. A specific DRE-binding factor, DREF, positively regulates DRE-containing genes. In addition, it has been reported that DREF can bind to a sequence in the hsp70 scs' chromatin boundary element that is also recognized by boundary element-associated factor, and thus DREF may participate in regulating insulator activity. To examine DREF function in vivo, we established transgenic flies in which ectopic expression of DREF was targeted to the eye imaginal discs. Adult flies expressing DREF exhibited a severe rough eye phenotype. Expression of DREF induced ectopic DNA synthesis in the cells behind the morphogenetic furrow, which are normally postmitotic, and abolished photoreceptor specifications of R1, R6, and R7. Furthermore, DREF expression caused apoptosis in the imaginal disc cells in the region where commitment to R1/R6 cells takes place, suggesting that failure of differentiation of R1/R6 photoreceptor cells might cause apoptosis. The DREF-induced rough eye phenotype was suppressed by a half-dose reduction of the E2F gene, one of the genes regulated by DREF, indicating that the DREF overexpression phenotype is useful to screen for modifiers of DREF activity. Among Polycomb/trithorax group genes, we found that a half-dose reduction of some of the trithorax group genes involved in determining chromatin structure or chromatin remodeling (brahma, moira, and osa) significantly suppressed and that reduction of Distal-less enhanced the DREF-induced rough eye phenotype. The results suggest a possibility that DREF activity might be regulated by protein complexes that play a role in modulating chromatin structure. Genetic crosses of transgenic flies expressing DREF to a collection of Drosophila deficiency stocks allowed us to identify several genomic regions, deletions of which caused enhancement or suppression of the DREF-induced rough eye phenotype. These deletions should be useful to identify novel targets of DREF and its positive or negative regulators.