The approximately 300 distinct neurons comprising each hemineuromere of the Drosophila embryonic central nervous system are derived from a segmentally reiterated array of approximately 30 progenitor cells, neuroblasts (NBs). Each NB has a unique identity and undergoes repeated cell divisions to produce several smaller secondary precursor cells, ganglion mother cells (GMCs); each GMC divides once to produce two neurons and/or glia, thereby generating a specific lineage of neurons/glia. Understanding the generation of neuronal diversity requires not only elucidation of the molecules and mechanisms that specify NB identity but also those that act to differentiate between the cell types produced within one NB lineage. Here we show that the Drosophila Zn finger protein Klumpfuss (Klu), which shows sequence similarities to the mammalian Wilm's tumor suppressor (WT-1), acts to differentiate between the identities of the first two secondary precursor cells produced from one NB lineage. Klu is expressed in the NB4-2 lineage only after two rounds of NB cell division, in the second born GMC (GMC4-2b). In loss-of-function mutant embryos, the first born GMC (GMC4-2a) as well as its progeny neurons are duplicated; we show that this duplication of the GMC4-2a sublineage arises because GMC4-2b adopts the identity of GMC4-2a and divides to produce the GMC4-2a progeny. Moreover, when Klu is ectopically expressed in GMC4-2a, it fails to acquire its normal identity and fails to produce correctly specified progeny. klu therefore acts to specify the identity of GMC4-2b and to make it distinct from GMC4-2a. Our findings further suggest that the determination of GMC cell fate occurs in two steps; the initial GMC identity is the consequence of inheritance from the maternal NB, however, the subsequent stabilization of this identity requires functions like klu in the GMC.