A critical question about signal transduction is how weak or transient activation of signaling pathways achieves a robust and long-term switch in gene expression. We report that a microRNA is part of a mechanism that makes cells sensitive to signals in the Drosophila eye. Expression of miR-7 is activated in cells as they begin differentiating into photoreceptors. This is dependent on EGF receptor (EGFR) signaling that triggers ERK-mediated degradation of the transcription factor Yan. In nonstimulated cells, Yan represses miR-7 transcription, whereas miR-7 RNA represses Yan protein expression in photoreceptors, by binding to sequences within its mRNA 3'UTR. We propose that reciprocal negative feedback between Yan and miR-7 ensures mutually exclusive expression, with Yan in progenitor cells and miR-7 in photoreceptor cells. Expression is switched when EGFR signaling transiently triggers Yan degradation. This two-tiered mechanism explains how signal transduction activity can robustly generate a stable change in gene-expression patterns.