The Drosophila DNA replication-related element binding factor (dDREF) is required for expression of many proliferation-related genes carrying the DRE sequence, 5'-TATCGATA. Over-expression of dDREF in the eye imaginal disc induces ectopic DNA synthesis, apoptosis and inhibition of photoreceptor cell specification, and results in rough eye phenotype in adults. In the present study, half dose reduction of the Distal-less (Dll) gene enhanced the dDREF-induced rough eye phenotype, suggesting that Dll negatively regulates dDREF activity in eye imaginal disc cells. Biochemical analyses revealed the N-terminal (30aa to 124aa) and C-terminal (190aa to 327aa) regions of Dll to interact with the DNA binding domain (16aa to 125aa) of dDREF, although it is not clear yet whether the interaction is direct or indirect. Electrophoretic mobility shift assays showed that Dll thereby inhibits DNA binding. The repression of this dDREF-function by a homeodomain protein like Dll may contribute to the differentiation-coupled repression of cell proliferation during development.