The function of the intracellular pupil mechanism is examined by comparing the responses of photoreceptors in normal flies with those from white-eyed flies that lack the pupil. In white-eyed flies the response to an intensity increment of fixed contrast decreases at high background intensities. There is a smaller decrease in noise amplitude so that the signal:noise ratio falls. The intensity dependence of the photoreceptor signal:noise ratio fits a simple model in which activated photopigment molecules compete for 3 X 10(4) transduction units. The signal:noise ratio decreases at high intensities because the transduction units are saturated. This model is supported by a noise analysis, which provides three estimates of the number of events generating photoreceptor responses. In white-eyed flies the event number saturates at high background intensities, suggesting that a maximum of 2 X 10(4) events can be simultaneously active. Wild-type flies do not exhibit saturation effects over the range of intensities studied. The signal:noise ratio rises with intensity to reach a stable asymptote, close to the maximum observed for white-eyed flies. Pupil attenuation is calculated from measurements of signal:noise ratio in white-eyed and wild-type flies. The pupil is progressively activated over a two log unit intensity range and when fully closed attenuates the effective intensity by 99%. The threshold of this pupil effect coincides with the threshold of pupil activation measured optically. We conclude that the intracellular pupil attenuates the light flux to prevent receptor saturation and to extend the range of intensities at which fly photoreceptors operate close to their maximum signal:noise ratio. This upper limit is determined by the number of transduction units generating a cell's response.