The neuroectoderm of insects contains an initially indifferent population of cells which during later development will give rise to the progenitor cells of the neural and epidermal lineages. Experimental evidence indicates that cellular interactions determine which cells will adopt each one of these fates. The invoked cell interactions are assumed to be mediated by the products of several genes forming a complex, not yet well understood network of interrelationships. Elements of this network are the proteins encoded by Delta and Notch, which appear to convey the regulatory signals between the cells; the proteins encoded by the achaete-scute gene complex, which regulate neural development, and the proteins encoded by the Enhancer of split gene complex, which give neuroectodermal cells access to epidermal development. The proneural genes appear to be the key elements in the regulation of the cellular decision.