We have used electron-microscopic studies, bromodeoxyuridine (BrdU) incorporation and antibody labeling to characterize the development of the Drosophila larval photoreceptor (or Bolwig's) organ and the optic lobe, and have investigated the role of Notch in the development of both. The optic lobe and Bolwig's organ develop by invagination from the posterior procephalic region. After cells in this region undergo four postblastoderm divisions, a total of approximately 85 cells invaginate. The optic lobe invagination loses contact with the outer surface of the embryo and forms an epithelial vesicle attached to the brain. Bolwig's organ arises from the ventralmost portion of the optic lobe invagination, but does not become incorporated in the optic lobe; instead, its 12 cells remain in the head epidermis until late in embryogenesis when they move in conjunction with head involution to reach their final position alongside the pharynx. Early, before head involution, the cells of Bolwig's organ form a superficial group of 7 cells arranged in a 'rosette' pattern and a deep group of 5 cells. Later, all neurons move out of the surface epithelium. Unlike adult photoreceptors, they do not form rhabdomeres; instead, they produce multiple, branched processes, which presumably carry the photopigment. Notch is essential for two aspects of the early development of the visual system. First, it delimits the number of cells incorporated into Bolwig's organ. Second, it is required for the maintenance of the epithelial character of the optic lobe cells during and after its invagination.