The Drosophila compound eye consists of approximately 750 independently functioning ommatidia, each containing two photoreceptor subpopulations. The outer photoreceptors participate in motion detection, while the inner photoreceptors contribute to color vision. Although the inner photoreceptors, R7 and R8, terminally differentiate into functionally related cells, they differ in their molecular and morphological makeup. Our data indicates that several aspects of R7 versus R8 cell fate determination are regulated by the transcription factor Prospero (Pros). pros is specifically expressed in R7 cells, and R7 cells mutant for pros derepress R8 rhodopsins, lose R7 rhodopsins and acquire an R8-like morphology. This suggests that R7 inner photoreceptor cell fate is acquired from a default R8-like fate that is regulated, in part, via the direct transcriptional repression of R8 rhodopsins in R7 cells. Furthermore, this study provides transcriptional targets for pros that may lend insight into its role in regulating neuronal development in flies and vertebrates.