Drosophila Lobe (L) alleles were first discovered ∼100 years ago as spontaneous dominant mutants with characteristic developmental eye defects. However, the molecular basis for L dominant eye phenotypes has not been clearly understood. A previous work reported identification of CG10109/PRAS40 as the L gene, but subsequent analyses suggested that PRAS40 may not be related to L Here, we revisited the L gene to clarify this discrepancy and understand the basis for the dominance of L mutations. Genetic analysis localized the L gene to Oaz, which encodes a homolog of the vertebrate zinc finger protein 423 (Zfp423) family transcriptional regulators. We demonstrate that RNAi knockdown of Oaz almost completely restores all L dominant alleles tested. Lrev6-3 , a revertant allele of the L2 dominant eye phenotype, has an inframe deletion in the Oaz coding sequence. Molecular analysis of L dominant mutants identified allele-specific insertions of natural transposons (roo<up> </up>L1 , hopper<up> </up>L5 , and roo<up> </up>Lr) or alterations of a preexisting transposon (L2 -specific mutations in roo<up> </up>Mohr) in the Oaz region. In addition, we generated additional L2 -reversion alleles by CRISPR targeting at Oaz These new loss-of-function Oaz mutations suppress the dominant L eye phenotype. Oaz protein is not expressed in wild-type eye disc but is expressed ectopically in L2/+ mutant eye disc. We induced male recombination between Oaz-GAL4 insertions and the L2 mutation through homologous recombination. By using the L2 -recombined GAL4 reporters, we show that Oaz-GAL4 is expressed ectopically in L2 eye imaginal disc. Taken together, our data suggest that neomorphic L eye phenotypes are likely due to misregulation of Oaz by spontaneous transposon insertions.