During eye development, retinal pigmented epithelium (RPE) and neural retina (NR) arise from a common origin, the optic vesicle. One of the early distinctions of RPE from NR is the reduced mitotic activity of the RPE. Growth arrest specific gene 1 (Gas1) has been documented to inhibit cell cycle progression in vitro (G. Del Sal et al., 1992, Cell 70, 595–607). We show here that the expression pattern of Gas1 in the eye supports its negative role in RPE proliferation. To test this hypothesis, we generated a mouse carrying a targeted mutation in the Gas1 locus. Gas1 mutant mice have microphthalmia. Histological examination revealed that the remnant mutant eyes are ingressed from the surface with minimal RPE and lens, and disorganized eyelid, cornea, and NR. Analysis of the Gas1 mutant indicates that there is overproliferation of the outer layer of optic cup (E10.5) immediately after the initial specification of the RPE. This defect is specific to the ventral region of the RPE. Using molecular markers for RPE (Mi and Tyrp2) and NR (Math5), we demonstrate that there is a gradual loss of Mi and Tyrp2 expression and an appearance of Math5 expression in the mutant ventral RPE region, indicating that this domain becomes respecified to NR. This “ectopic” NR develops as a mirror image of the normal NR and is entirely of ventral identity. Our data not only support Gas1's function in regulating cell proliferation, but also uncover an unexpected regional-specific cell fate change associated with dysregulated growth. Furthermore, we provide evidence that the dorsal and ventral RPEs are maintained by distinct genetic components.