The progression of retinal morphogenesis in the Drosophila eye is controlled to a large extent by Hedgehog (Hh), a signaling protein emanating from differentiating photoreceptor cells. Adjacent, more anterior cells in the morphogenetic furrow respond to Hh by expressing decapentaplegic (dpp), suggesting that the relationship between Hh and Dpp might be similar to that in the limb imaginal discs where Dpp mediates the organizing activity of Hh. In this study we show that this is not the case. Analysis of somatic clones of cells lacking the Dpp receptors Punt or Tkv reveals that Dpp plays only a minor role in furrow progression and no critical role in subsequent ommatidial development. In contrast, Hh-independent dpp expression around the posterior and lateral margins of the first and second instar eye discs is important for the growth of the eye disc and for initiation of the morphogenetic furrow at these margins.