During the development of the Drosophila eye, specific cell types differentiate from an initially equipotent group of uncommitted precursor cells. The lozenge (lz) gene, which is a member of the Runt family of transcriptional regulators, plays a pivotal role in mediating this process through regulating the expression of several fate-specifying transcription factors. However, the regulation of lz, and the control of lz expression levels in different cell types is not fully understood.Here, we show a genetic interaction between Tramtrack69 (Ttk69) a key transcriptional repressor and an inhibitor of neuronal fate specification, and lz, the master patterning gene of cells posterior to the morphogenetic furrow in the Drosophila eye disc. Loss of Ttk69 expression causes the development of ectopic R7 cells in the third instar eye disc, with these cells being dependent upon Lz for their development. Using the binary UAS Gal4 system, we show that overexpression of Ttk69 causes the loss of lz-dependent differentiating cells, and a down-regulation of Lz expression in the developing eye. The loss of lz-dependent cells can be rescued by overexpressing lz via a GMR-lz transgene. We provide additional data showing that factors functioning upstream of Ttk69 in eye development regulate lz in a Ttk69-dependent manner.Our results lead us to conclude that Ttk69 can either directly or indirectly repress lz gene expression to prevent the premature development of R7 precursor cells in the developing eye of Drosophila. We therefore define a mechanism for the tight regulatory control of the master pre-patterning gene, lz, in early Drosophila eye development and provide insight into how differential levels of lz expression can be achieved to effect specific cell fate outcomes.