We find that inactivation of a Drosophila homolog of the tumor suppres
sor APC (D-APC) causes retinal neuronal degeneration and pigment cell
hypertrophy, a phenotype remarkably similar to that found in humans wi
th germline APC mutations. Retinal degeneration in the D-APC mutant re
sults from apoptotic cell death, which accompanies a defect in neurona
l differentiation. Reduction in the Drosophila beta-catenin, Armadillo
(Arm), rescues the differentiation defect and prevents apoptosis in t
he D-APC mutant, while Arm overexpression mimics D-APC inactivation. A
mutation in dTCF, the DNA-binding protein required in Arm-mediated si
gnal transduction, can eliminate the cell death without rescuing the d
ifferentiation defect in D-APC mutants. Uncoupling of these two Arm-in
duced processes suggests a novel role for the Arm/dTCF complex in the
activation of apoptosis.