In the developing eye, wingless activity represses proneural gene expression (and thus interommatidial bristle formation) and positions the morphogenetic furrow by blocking its initiation in the dorsal and ventral regions of the presumptive eye. We provide evidence that wingless mediates both effects, at least in part, through repression of the basic helix-loop-helix protein Daughterless. daughterless is required for high proneural gene expression and furrow progression. Ectopic expression of wingless blocks Daughterless expression in the proneural clusters. This repression, and that of furrow progression, can be mimicked by an activated form of armadillo and blocked by a dominant negative form of pangolin/TCF. Placing daughterless under the control of a heterologous promoter blocks the ability of ectopic wingless to inhibit bristle formation and furrow progression. hedgehog and decapentapleigic could not rescue the wingless furrow progression block, indicating that wingless acts downstream of these genes. In contrast, Atonal and Scute, which are thought to heterodimerize with Daughterless to promote furrow progression and bristle formation, respectively, can block ectopic wingless action. These results are summarized in a model where daughterless is a major, but probably not the only, target of wingless action in the eye.