Neurons and glia are generated by multipotent precursors. Recent studies indicate that the choice between the two fates depends on the combined activity of extracellular influences and factors that respond to precise spatial and temporal cues. Drosophila provides a simple genetic model to study the cellular and molecular mechanisms controlling fate choice, mode of precursor division and generation of cell diversity. Moreover, all glial precursors and glial-promoting activities have been identified in Drosophila, which provides us with a unique opportunity to dissect regulatory pathways controlling glial differentiation and specification.