The precise control of eye size is essential for normal vision. TMEM98 is a highly conserved and widely expressed gene which appears to be involved in eye size regulation. Mutations in human TMEM98 are found in patients with nanophthalmos (very small eyes) and variants near the gene are associated in population studies with myopia and increased eye size. As complete loss of function mutations in mouse Tmem98 result in perinatal lethality, we produced mice deficient for Tmem98 in the retinal pigment epithelium (RPE), where Tmem98 is highly expressed. These mice have greatly enlarged eyes that are very fragile with very thin retinas, compressed choroid and thin sclera. To gain insight into the mechanism of action we used a proximity labelling approach to discover interacting proteins and identified MYRF as an interacting partner. Mutations of MYRF are also associated with nanophthalmos. The protein is an endoplasmic reticulum-tethered transcription factor which undergoes autoproteolytic cleavage to liberate the N-terminal part which then translocates to the nucleus where it acts as a transcription factor. We find that TMEM98 inhibits the self-cleavage of MYRF, in a novel regulatory mechanism. In RPE lacking TMEM98, MYRF is ectopically activated and abnormally localised to the nuclei. Our findings highlight the importance of the interplay between TMEM98 and MYRF in determining the size of the eye.