Ultraspiracle (usp) encodes the Drosophila cognate of RXR, the human retinoid X receptor. To examine how RXR subfamily members function in development, we have undertaken a phenotypic analysis of usp mutants. usp is required at multiple stages of development for functions that occur in a wide variety of tissues. usp is required in the eye-antennal imaginal disc for normal eye morphogenesis and in the somatic and germline tissues of adult females for fertilization, eggshell morphogenesis and embryonic development. An unusual sunken eye phenotype with marked ventral-dorsal polarity appears to be caused by a lack of usp function in the imaginal disc cells that reside between the eye and antennal anlage. The usp functions include cell autonomous and non-cell autonomous components, suggesting that usp controls the production of factors important for both cell-cell communication and cellular differentiation. These usp signalling pathways have mechanistic parallels to steroid and retinoid action in developing vertebrate tissues.