The possibility that mechanisms of retinal determination may be similar between vertebrates and Drosophila has been supported by the observations that Pax6/eyeless genes are necessary and sufficient for retinal development. These studies suggest that the function of other gene families, operating during early eye development, might also be conserved. One candidate is the retinal homeobox (Rx) family of transcription factors. Vertebrate Rx is expressed in the prospective eye and forebrain and is required for eye morphogenesis, retinal precursor appearance, and normal forebrain development, indicating that it is an essential regulator of early eye and brain formation. Here, we test the hypothesis that Drosophila Rx (drx) is required for adult and larval eye development. We have isolated a drx null allele and demonstrate that the mutant compound eye and larval visual system is not detectably abnormal. However, we find that drx is required for development of a central brain structure, the ellipsoid body, suggesting that Rx function in the brain may be conserved. Finally, we characterize a novel anterior head phenotype and demonstrate that drx is required for clypeus development. Thus, our data suggest that drx may be required for the regulation of genes involved in brain morphogenesis and clypeus precursor development. We propose that differences in insect and vertebrate eye development may be explained by changes in gene regulation and/or the tissue of origin for eye precursor cells.