Cell cycle progression and differentiation are highly coordinated during the development of multicellular organisms. The mechanisms by which these processes are coordinated and how their coordination contributes to normal development are not fully understood. Here, we determine the developmental fate of a population of precursor cells in the developing Drosophila melanogaster retina that arrest in G2 phase of the cell cycle and investigate whether cell cycle phase-specific arrest influences the fate of these cells. We demonstrate that retinal precursor cells that arrest in G2 during larval development are selected as sensory organ precursors (SOPs) during pupal development and undergo two cell divisions to generate the four-cell interommatidial mechanosensory bristles. While G2 arrest is not required for bristle development, preventing G2 arrest results in incorrect bristle positioning in the adult eye. We conclude that G2-arrested cells provide a positional cue during development to ensure proper spacing of bristles in the eye. Our results suggest that the control of cell cycle progression refines cell fate decisions and that the relationship between these two processes is not necessarily deterministic.