The Drosophila decapentaplegic (dpp) gene, encoding a secreted protein of the transforming growth factor-beta (TGF-beta) superfamily, controls proliferation and patterning in diverse tissues, including the eye imaginal disc. Pattern formation in this tissue is initiated at the posterior edge and moves anteriorly as a wave; the front of this wave is called the morphogenetic furrow (MF). Dpp is required for proliferation and initiation of pattern formation at the posterior edge of the eye disc. It has also been suggested that Dpp is the principal mediator of Hedgehog function in driving progression of the MF across the disc. In this paper, ectopic Dpp expression is shown to be sufficient to induce a duplicated eye disc with normal shape, MF progression, neuronal cluster formation and direction of axon outgrowth. Induction of ectopic eye development occurs preferentially along the anterior margin of the eye disc. Ectopic Dpp clones situated away from the margins induce neither proliferation nor patterning. The Dpp signalling pathway is shown to be under tight transcriptional and post-transcriptional control within different spatial domains in the developing eye disc. In addition, Dpp positively controls its own expression and suppresses wingless transcription. In contrast to the wing disc, Dpp does not appear to be the principal mediator of Hedgehog function in the eye.