Inductive patterning mechanisms often use negative regulators to coordinate the effects and efficiency of induction. During Spitz EGF-mediated neuronal induction in the Drosophila compound eye and chordotonal organs, Spitz causes activation of Ras signaling in the induced cells, resulting in the activation of Ets transcription factor Pointed P2. We describe developmental roles of a novel negative regulator of Ras signaling, EDL/MAE, a protein with an Ets-specific Pointed domain but not an ETS DNA-binding domain. The loss of EDL/MAE function results in reduced number of photoreceptor neurons and chordotonal organs, suggesting a positive role in the induction by Spitz EGF. However, EDL/MAE functions as an antagonist of Pointed P2, by binding to its Pointed domain and abolishing its transcriptional activation function. Furthermore, edl/mae appears to be specifically expressed in cells with inducing ability. This suggests that inducing cells, which can respond to Spitz they themselves produce, must somehow prevent activation of Pointed P2. Indeed hyperactivation of Pointed P2 in inducing cells interferes with their inducing ability, resulting in the reduction in inducing ability. We propose that EDL/MAE blocks autocrine activation of Pointed P2 so that inducing cells remain induction-competent. Inhibition of inducing ability by Pointed probably represents a novel negative feedback system that can prevent uncontrolled spread of induction of similar cell fates.