EGF receptor signalling plays diverse inductive roles during development. To achieve this, its activity must be carefully regulated in a variety of ways to control the time, pattern, intensity and duration of signalling. We show that the cell surface protein Echinoid is required to moderate Egfr signalling during R8 photoreceptor selection by the proneural gene atonal during Drosophila eye development. In echinoid mutants, Egfr signalling is increased during R8 formation, and this causes isolated R8 cells to be replaced by groups of two or three cells. This mutant phenotype resembles the normal inductive function of Egfr in other developmental contexts, particularly during atonal-controlled neural recruitment of chordotonal sense organ precursors. We suggest that echinoid acts to prevent a similar inductive outcome of Egfr signalling during R8 selection.