Cone cells are lens-secreting cells in ommatidia, the unit eyes that compose the compound eye of Drosophila. Each ommatidium contains four cone cells derived from precursor cells of the R7 equivalence group which express the gene sevenless (sev). When a constitutively active form of Ras1 (Ras1V12) is expressed in the R7 equivalence group cells using the sev promoter (sev-Ras1V12), additional cone cells are formed in the ommatidium. Expression of Ras1N17, a dominant negative form of Ras1, results in the formation of 1-3 fewer cone cells than normal in the ommatidium. The effects of Ras1 variants on cone cell formation are modulated by changing the gene dosage at the canoe (cno) locus, which encodes a cytoplasmic protein with Ras-binding activity. An increase or decrease in gene dosage potentiates the sev-Ras1v12 action, leading to marked induction of cone cells. A decrease in cno+ activity also enhances the sev-Ras1N17 action, resulting in a further decrease in the number of cone cells contained in the ommatidium. In the absence of expression of sev-Ras1V12 or sev-Ras1N17, an overdose of wild-type cno (cno+) promotes cone cell formation while a significant reduction in cno+ activity results in the formation of 1-3 fewer cone cells than normal in the ommatidium. We propose that there are two signaling pathways in cone cell development, one for its promotion and the other for its repression, and Cno functions as a negative regulator for both pathways. We also postulate that Cno predominantly acts on a prevailing pathway in a given developmental context, thereby resulting in either an increase or a decrease in the number of cone cells per ommatidium. The extra cone cells resulting from the interplay of Ras1v12 and Cno are generated from a pool of undifferentiated cells that are normally fated to develop into pigment cells or undergo apoptosis.