The Drosophila eye field that gives rise to the visual system and dorsal head epidermis forms an unpaired anlage located in the dorsal head ectoderm. The eye field expresses and requires both Dpp and EGFR signaling for its development. As shown in previous studies, EGFR is required for cell maintenance in the developing visual system. Dpp initially switches on the early eye genes so and eya in the eye field. Consecutively, high levels of Dpp in the dorsal midline inhibit these genes and promote development of head epidermis. We show that Dpp negatively regulates EGFR signaling, thereby increasing the amount of cell death in the dorsal midline. By this mechanism, Dpp controls the formation of a bilateral visual system and indirectly modulates cell death, which is essential for normal head morphogenesis. Loss of either Dpp or its downstream target, Zen, abolishes head epidermis fate and leads to the misexpression of dp-ERK in the dorsal midline. The resulting morphological phenotype consists of cyclopia, reduction of cell death, and failure of head involution. Ectopic expression of activated EGFR inhibits the Dpp target race and thereby causes cyclopia and defective head involution. We discuss possible mechanisms of Dpp and EGFR interaction in the embryo.