Many cell fate decisions are determined transcriptionally. Accordingly, some fate specification is prevented by Inhibitor of DNA binding (Id) proteins that interfere with certain master regulatory transcription factors. We report that theDrosophilaId protein Extra macrochaetae (Emc) also affects developmental decisions by regulating caspase activity. Emc, which prevents proneural bHLH transcription factors from specifying neural cell fate, also prevents homodimerization of another bHLH protein, Daughterless (Da), and thereby maintains expression of theDeath-Associated Inhibitor of Apoptosis(diap1) gene. Multiple effects ofemcmutations, on cell growth and on eye development, were all caused by reduced Diap1 levels and corresponding activation of caspases. These effects included growth of unspecified imaginal disc cells, acceleration of the morphogenetic furrow, failure of R7 photoreceptor cell specification, and delayed differentiation of non-neuronal cone cells. Withinemcmutant eye clones, morphogenetic furrow speed was increased by elevated Notch signaling, while decreased Notch signaling inhibited R7 specification and cone cell differentiation. This was all due to caspase-dependent increase in levels of Delta protein, a transmembrane ligand that both trans- activates and cis-inhibits Notch. Thus,emcmutations reveal the importance of restraining caspase activity, even in non-apoptotic cells, to prevent abnormal development.