ABSTRACT Cells in the Drosophila eye are determined by inductive signalling. Here I describe a new model of eye development that explains how simple intercellular signals could specify the diverse cell types that constitute the ommatidium. This model arises from the recent observation that the Drosophila homologue of the EGF receptor (DER) is used reiteratively to trigger the differentiation of each of the cell types – successive rounds of DER activation recruit first the photoreceptors, then cone and finally pigment cells. It seems that a cell’s identity is not determined by the specific signal that induces it, but is instead a function of the state of the cell when it receives the signal. DER signalling is activated by the ligand, Spitz, and inhibited by the secreted protein, Argos. Spitz is initially produced by the central cells in the ommatidium and diffuses over a small distance. Argos has a longer range, allowing it to block more distal cells from being activated by low levels of Spitz; I have termed this interplay between a short-range activator and a long-range inhibitor ‘remote inhibition’. Since inductive signalling is common in many organisms and its components have been conserved, it is possible that the logic of signalling may also be conserved.