Developing epithelia use a variety of patterning mechanisms to place individual cells into their correct positions. However, the means by which pattern elements are established are poorly understood. Here, we report evidence that regulation of Drosophila EGF receptor (DER) activity plays a central role in propagating the evenly spaced array of ommatidia across the developing Drosophila retina. DER activity is essential for establishing the first ommatidial cell fate, the R8 photoreceptor neuron. R8s in turn appear to signal through Rhomboid and Vein to create a patterned array of 'proneural clusters' which contain high levels of phosphorylated ERKA and the bHLH protein Atonal. Finally, secretion by the proneural clusters of Argos represses DER activity in less mature regions to create a new pattern of R8s. Propagation of this process anteriorly results in a retina with a precise array of maturing ommatidia.