The mechanisms that generate precise patterns of discrete cell types within developing fields are not well understood. One model for analyzing how cells interpret positional information in two dimensions is the regulation of proneural cluster formation within insect segments. Two adjacent proneural regulatory genes, achaete and scute, are expressed coincidently in cell clusters at reproducible anteroposterior (AP) and dorsoventral (DV) coordinates within the Drosophila embryo from which single neuroblasts later arise. Here, we show that the AP and DV position of these clusters is regulated through a common cis-acting region between the genes under the initial control of the products of the pair-rule and DV polarity genes and is later maintained by selected segment polarity genes. The combination of proneural gene activation/repression in AP stripes and repression within specific DV domains positions each cluster of achaete/scute expressing cells within segments; interactions between these cells then determine individual cell fates.