A critical event in vertebrate eye development is the early separation of the seemingly uniform epithelium of the optic cup into a domain that will become the multilayered retina and a domain that will become the monolayer retinal pigment epithelium or RPE. This separation is controlled by a number of signaling molecules and transcription factors including fibroblast growth factors (FGFs), bone morphogenetic proteins, transforming growth factor-betas, the homeodomain proteins PAX6 and VAX1/2, and the basic helix-loop-helix-zipper protein MITF. One of the early signs of the action of these factors is the establishment of a differential rate of cell proliferation which is high in the future retina and low in the future RPE. This fact prompted us to initiate studies in which we correlate cell cycle parameters with cell signaling and transcription regulation. Interestingly, it appears that peak activities in cell signaling responses may be cell cycle-specific. In separate experiments, we have identified a regulatory loop that involves PAX6, MITF, its paralog TCFEC, and WNT-regulating signaling factors and that is crucial for RPE and retina development. The studies show that PAX6, well-known for its pro-retinogenic activity in the retina, has in fact anti-retinogenic roles in the future RPE, particularly in its dorsal part. Similar roles are played by VAX1/2 in the ventral RPE. A detailed knowledge on the mechanisms regulating early development in vivo may become important for the generation of retinal and RPE cells from embryonic or induced pluripotent stem cells in vitro. Such cells hold much promise for cell-based therapies in human blindness, including adult onset macular degeneration, and for studying the pathogenesis of such diseases at the molecular level. Nevertheless, at the present time, the process of their generation is still not very well controlled and it remains to be seen whether they represent truly authentic cell types. A careful monitoring of the activities of PAX6 and its regulatory partners may therefore become important to efficiently generate functional RPE and retinal cells in vitro.