Cell fate determination in many systems is based upon inductive events driven by cell-cell interactions. Inductive signaling regulates many aspects of Drosophila compound eye development. Accumulating evidence suggests that the color sensitivity of the R8 photoreceptor cell within an individual ommatidium is regulated by an inductive signal from the adjacent R7 photoreceptor cell. This signal is thought to control an induced versus default cell-fate switch that coordinates the visual pigment expression and color sensitivities of adjacent R7 and R8 photoreceptor cells. Here we describe a disruption in R7 and R8 cell patterning in Scutoid mutants that is due to inappropriate signals from Rh4-expressing R7 cells inducing Rh5 expression in adjacent R8 cells. This dominant phenotype results from the misexpression of the transcriptional repressor snail, which with the co-repressor C-terminal-Binding-Protein represses rhomboid expression in the developing eye. We show that loss of rhomboid suppresses the Scutoid phenotype. However in contrast to the loss of rhomboid alone, which entirely blocks the normal inductive signal from the R7 to the R8 photoreceptor cell, Scutoid rhomboid double mutants display normal Rh5 and Rh6 expression. Our detailed analysis of this unusual dominant gain-of-function neomorphic phenotype suggests that the induction of Rh5 expression in Scutoid mutants is partially rhomboid independent.