The Epidermal growth factor receptor (Egfr) pathway controls cell fate decisions throughout phylogeny. Typically, binding of secreted ligands to Egfr on the cell surface initiates a well-described cascade of events that ultimately invokes transcriptional changes in the nucleus. In contrast, the mechanisms by which autocrine effects are regulated in the ligand-producing cell are unclear. In the Drosophila eye, Egfr signaling, induced by the Spitz ligand, is required for differentiation of all photoreceptors except for R8, the primary source of Spitz. R8 differentiation is instead under the control of the transcription factor Senseless. We show that high levels of Egfr activation are incompatible with R8 differentiation and describe the mechanism by which Egfr signaling is actively prevented in R8. Specifically, Senseless does not affect cytoplasmic transduction of Egfr activation, but does block nuclear transduction of Egfr activation through transcriptional repression of pointed, which encodes the nuclear effector of the pathway. Thus, Senseless promotes normal R8 differentiation by preventing the effects of autocrine stimulation by Spitz. An analogous relationship exists between Senseless and Egfr pathway orthologs in T-lymphocytes, suggesting that this mode of repression of Egfr signaling is conserved.