The Drosophila optic lobe comprises a wide variety of neurons, which form laminar neuropiles with columnar units and topographic projections from the retina. The Drosophila optic lobe shares many structural characteristics with mammalian visual systems. However, little is known about the developmental mechanisms that produce neuronal diversity and organize the circuits in the primary region of the optic lobe, the medulla. Here, we describe the key features of the developing medulla and report novel phenomena that could accelerate our understanding of the Drosophila visual system. The identities of medulla neurons are pre-determined in the larval medulla primordium, which is subdivided into concentric zones characterized by the expression of four transcription factors: Drifter, Runt, Homothorax and Brain-specific homeobox (Bsh). The expression pattern of these factors correlates with the order of neuron production. Once the concentric zones are specified, the distribution of medulla neurons changes rapidly. Each type of medulla neuron exhibits an extensive but defined pattern of migration during pupal development. The results of clonal analysis suggest homothorax is required to specify the neuronal type by regulating various targets including Bsh and cell-adhesion molecules such as N-cadherin, while drifter regulates a subset of morphological features of Drifter-positive neurons. Thus, genes that show the concentric zones may form a genetic hierarchy to establish neuronal circuits in the medulla.