Cells in the morphogenetic furrow of the Drosophila eye disc undergo a striking shape change immediately prior to their neuronal differentiation. We have isolated mutations in a novel gene, act up (acu), that is required for this shape change. acu encodes a homolog of yeast cyclase-associated protein, which sequesters monomeric actin; we show that acu is required to prevent actin filament polymerization in the eye disc. In contrast, profilin promotes actin filament polymerization, acting epistatically to acu. However, both acu and profilin are required to prevent premature Hedgehog-induced photoreceptor differentiation ahead of the morphogenetic furrow. These findings suggest that dynamic changes in actin filaments alter cell shape to control the movement of signals that coordinate a wave of differentiation.