Eyes absent (Eya), named for its role in Drosophila eye development but broadly conserved in metazoa, possesses dual functions as a transcriptional coactivator and protein tyrosine phosphatase. Although Eya's transcriptional activity has been extensively characterized, the physiological requirements for its phosphatase activity remain obscure. In this study, we provide insight into Eya's participation in phosphotyrosine-mediated signaling networks by demonstrating cooperative interactions between Eya and the Abelson (Abl) tyrosine kinase during development of the Drosophila larval visual system. Mechanistically, Abl-mediated phosphorylation recruits Eya to the cytoplasm, where in vivo studies reveal a requirement for its phosphatase function. Thus, we propose a model in which, in addition to its role as a transcription factor, Eya functions as a cytoplasmic protein tyrosine phosphatase.