The Drosophila eye is a useful model system in which to study cell-cell signaling, cell fate determination, and neuronal connectivity. Differentiation of cells within the eye primordium, the eye imaginal disc, is a progressive process that moves across the disc from posterior to anterior. The secreted protein Hedgehog (Hh) induces photoreceptor differentiation and also indirectly induces its own expression, driving propagation of a wave of differentiation across the eye disc. Hh induces only the first photoreceptor to form within each cluster, R8; R8 then produces Spitz, a ligand for the Epidermal growth factor receptor (EGFR) that recruits additional photoreceptors to the cluster. We are taking a genetic approach to identify other molecules involved in establishing the pattern of photoreceptor differentiation in the eye disc. We have discovered a number of novel components of the Hh and EGFR pathways and elucidated their mechanisms of action. One example is the rasp gene, which encodes a transmembrane acyltransferase that adds an essential palmitate modification to both Hh and Spitz. We have shown that palmitoylation of Spitz tethers it to the plasma membrane of producing cells, restricting its diffusion and thus increasing its local concentration. We are investigating the prevalence of lipid modifications of other secreted signaling proteins. myopic encodes an endosomal protein that appears to enhance EGFR activity by promoting its progression through endocytosis. We are investigating the role of EGFR cleavage during endocytosis. mago nashi encodes a subunit of the exon junction complex (EJC), which is deposited onto all spliced mRNAs. Interestingly, mago nashi mutants specifically fail to express MAP kinase (MAPK), a critical downstream component of the EGFR pathway. We are testing the hypothesis that the EJC is required to splice the very large introns in the mapk gene. Another set of genes found in our screen encode both specific and general transcription factors. The GATA factor Pannier sets the dorsal boundary of the eye field, while the coactivator Chip and LIM-homeodomain proteins set the ventral boundary. MED12 and MED13, two subunits of an accessory submodule of the mediator complex, are specifically required for the expression of genes regulated by Wingless and Notch signaling; we believe that they function as adaptors to recruit the mediator complex to Wingless and Notch target genes. We have also found specific roles for subunits that distinguish two forms of the Brahma chromatin remodeling complex. Additional mutations from the screen remain to be characterized. In addition to the pattern of photoreceptor differentiation, we are studying synaptic partner selection by photoreceptor axons. We have found that the protein tyrosine phosphatase LAR and its interacting protein Liprin-I? are specifically required for the axon of the UV-sensitive photoreceptor R7 to reach its normal termination layer. We have shown that LAR promotes R7 targeting by a novel mechanism that requires specific structural features but not phosphatase activity. RPTP regulation and signaling are poorly understood; we are searching for ligands and effectors for LAR in order to clarify these processes in a well-defined system. We have shown that Liprin-I? acts downstream of LAR, and has both positive and negative interactions with two other members of the Liprin family. Although LAR and the three Liprins are also involved in neuromuscular synapse growth, their molecular functions appear to be different in this system. We are beginning a new project to develop Drosophila as a model system for the study of axonal regeneration.