The acquisition of terminal cell fate and onset of differentiation are instructed by cell type-specific master control genes. Loss of differentiation is frequently observed during cancer progression, but the underlying causes and mechanisms remain poorly understood. We tested the hypothesis that master regulators of differentiation may be key regulators of tumor formation. Using loss- and gain-of-function analyses in Drosophila, we describe a critical anti-oncogenic function for the atonal transcription factor in the fly retina, where atonal instructs tissue differentiation. In the tumor context, atonal acts by regulating cell proliferation and death via the JNK stress response pathway. Combined with evidence that atonal's mammalian homolog, ATOH1, is a tumor suppressor gene, our data support a critical, evolutionarily conserved, function for ato in oncogenesis.