The mechanisms of cell cycle exit by neurons remain poorly understood. Through genetic and developmental analysis of Drosophila eye development, we found that the cyclin-dependent kinase-inhibitor Roughex maintains G1 cell cycle exit during differentiation of the R8 class of photoreceptor neurons. The roughex mutant neurons re-enter the mitotic cell cycle and progress without executing cytokinesis, unlike non-neuronal cells in the roughex mutant that perform complete cell divisions. After mitosis, the binucleated R8 neurons usually transport one daughter nucleus away from the cell body into the developing axon towards the brain in a kinesin-dependent manner resembling anterograde axonal trafficking. Similar cell cycle and photoreceptor neuron defects occurred in mutants for components of the Anaphase Promoting Complex/Cyclosome. These findings indicate a neuron-specific defect in cytokinesis and demonstrate a critical role for mitotic cyclin downregulation both to maintain cell cycle exit during neuronal differentiation and to prevent axonal defects following failed cytokinesis.