Formula in cell cell based on another cell.

Hi,
I am trying to write a formula in a cell based on another cell. Basically is it possible?
I have a cell that I want to display enter Y or N, then depending on what you input the cell states 2 out comes. The below formula is in cell $D2 but I really need the formula in $D3 in order to work but of course it can't be because when I input the Y or N in cell $D3 it will delete the formula. Is there away of doing this?
Any help will be appreciated.

=IF(ISBLANK($D3),"Enter Y or N",IF($D3="y","Taken",IF($D3="n","Not Taken?","errr!")))

Hi,
Thanks for replying, there’s no reason why 2 cells can’t be used in fact I have done it that way, I was just wondering if there was a way around doing what I required just to make it look good and to shrink the size of the sheet.
Kevin.