Formation of thecompoundeye of Drosophilarequires carefully orchestrated developmental events that occur in its progenitor epithelium, the eye imaginal disc.This tissue is composed of two continuous, apposed epithelia: the disc proper epithelium (DpE), which forms the retina, and the peripodial epithelium (PE), which ultimately forms head cuticle. In this work, I describe an armadillo (b-catenin)loss-of-function condition in which the developing DpEis disrupted and displays a phenotype that I call“retinalshift”. This developmental phenotype ultimately results in abnormal fly eye morphology that is incompatible with compound eye vision.I uncover a role for the PE in maintaining proper retinal epithelium morphology during eye formation and trace the molecular mechanism to the regulation of Hippo-Yki pathway in PE cells by the function of Armadillo at the adherens junctions.