During Drosophila eye development, the posterior-to-anterior movement of the morphogenetic furrow coordinates cell cycle progression with the early events of pattern formation. The cdc25 phosphatase string (stg) has been proposed to contribute to the synchronization of retinal precursors anterior to the furrow by driving cells in G(2) through mitosis and into a subsequent G(1). Genetic and molecular analysis of Drop (Dr) mutations suggests that they represent novel cis-regulatory alleles of stg that inactivate expression in eye. Retinal precursors anterior to the furrow lacking stg arrest in G(2) and fail to enter mitosis, while cells within the furrow accumulate high levels of cyclins A and B. Although G(2)-arrested cells initiate normal pattern formation, the absence of stg results in retinal patterning defects due to the recruitment of extra photoreceptor cells. These results demonstrate a requirement for stg in cell cycle regulation and cell fate determination during eye development.