The regulatory gene hairy is expressed and required during early embryogenesis to control segmentation gene expression properly and during larval and pupal development to control the pattern of certain adult sensory structures. We have found the hairy protein to be expressed transiently during two stages of eye imaginal disc development, including all cells immediately anterior to the morphogenetic furrow that traverses the developing eye disc, and again in the presumptive R7 photoreceptor cells of the developing ommatidia. This pattern is conserved in a significantly diverged Drosophila species. We show that, surprisingly, ommatidia formed by homozygous hairy- mutant clones are apparently normal, indicating that hairy function in the eye is dispensable. However, we do find that ectopic expression of hairy causes numerous structural abnormalities and the alteration of cell fates. Thus, proper regulation of hairy is still essential for normal eye development. We suggest that the loss of hairy function may be compensated by other regulatory proteins, as has been observed previously for several structurally and functionally related genes involved in sensory organ development. The effects of ectopic hairy expression may result from interactions with proneural genes involved in the development of the eye and other sensory organs.