Pax6 and its Drosophila homolog Eyeless (Ey) play essential roles during eye development. Ey/Pax6 contains two distinct DNA binding domains, a Paired domain (PD) and a Homeodomain (HD). While Ey/Pax6 PD is required for the expression of key regulators of retinal development, relatively little is known about the HD-dependent Ey function. In this study, we used the UAS/GAL4 system to determine the functions of different Ey domains on cell growth and on retinal development. We showed that Ey can promote cell growth, which requires the HD but not the PD. In contrast, the ability of Ey to activate Ato expression and induce ectopic eye formation requires the PD but not the HD. Interestingly, deletion of the HD enhanced Ey-dependent ectopic eye induction while overexpression of the HD only Ey forms antagonizes ectopic eye induction. These studies revealed a novel function of Ey HD on cell growth and a novel antagonistic effect of Ey HD on Ey PD-dependent eye induction. We further show the third helix of the Ey HD can directly interact with the RED subdomain in Ey PD and that deletion of the HD increased the binding of Ey PD to its target. These results suggest that the direct interaction between the HD and the PD potentially mediates their antagonistic effects. Since different Ey splicing forms are expressed in overlapping regions during normal development, we speculate that the expression ratios of the different Ey splice forms potentially contribute to the regulation of growth and differentiation of these tissues.