The rho family of GTPases has been implicated in regulating changes in cell morphology in response to extracellular signals. We have cloned three widely expressed members of this family from Drosophila melanogaster; a rho homologue (Rho1) and two rac homologues (Rac1 and Rac2). Flies harbouring a Rho1 transgene that is specifically expressed in the eye exhibit a dramatic dose dependent disruption of normal eye development. Flies bearing at least two copies of the transgene display a severe rough eye phenotype characterized by missing secondary and tertiary pigment cells, a substantial reduction in the number of photoreceptor cells and a grossly abnormal morphology of the rhabdomeres. Cell fate determination in the imaginal disc occurs normally and abnormalities become manifest late in pupariation, coincident with the phase when the cells undergo major morphological changes. This phenotype is modified by mutations at several other loci that have been implicated in signal transduction, but not by mutations in ras pathway components.