How a pool of equipotent cells acquires a multitude of distinct fates is a major question in developmental biology. The study of photoreceptor (PR) cell differentiation in Drosophila has been used to address this question. PR differentiation is a process that extends over a period of 5 days: It begins in the larval eye imaginal disc when PRs are recruited and commit to particular PR fates, and it culminates in the pupal eye disc with the morphogenesis of the rhabdomeres and the initiation of rhodopsin expression. Several models for PR specification agree that the Ras and Notch signaling pathways are important for the specification of different PR subtypes (Freeman  Development 124:261–270; Cooper and Bray  Curr. Biol. 10:1507–1510; Tomlinson and Struhl  Mol. Cell. 7:487–495). In the first part of this review, we briefly describe the different signaling pathways and transcription factors required for the specification and differentiation of the different PR subtypes in the larval eye disc. In the second part, we review the roles of several transcription factors, which are required for the terminal photoreceptor differentiation and rhodopsin expression. Developmental Dynamics 232:585–592, 2005. © 2005 Wiley-Liss, Inc.