The Drosophila embryo provides a useful model system to study the mechanisms that lead to pattern and cell diversity in the central nervous system (CNS). The Drosophila CNS, which encompasses the brain and the ventral nerve cord, develops from a bilaterally symmetrical neuroectoderm, which gives rise to neural stem cells, called neuroblasts. The structure of the embryonic ventral nerve cord is relatively simple, consisting of a sequence of repeated segmental units (neuromeres), and the mechanisms controlling the formation and specification of the neuroblasts that form these neuromeres are quite well understood. Owing to the much higher complexity and hidden segmental organization of the brain, our understanding of its development is still rudimentary. Recent investigations on the expression and function of proneural genes, segmentation genes, dorsoventral-patterning genes and a number of other genes have provided new insight into the principles of neuroblast formation and patterning during embryonic development of the fly brain. Comparisons with the same processes in the trunk help us to understand what makes the brain different from the ventral nerve cord. Several parallels in early brain patterning between the fly and the vertebrate systems have become evident. BioEssays 26:739–751, 2004. © 2004 Wiley Periodicals, Inc.