The thoracic limb primordium of Drosophila melanogaster is a useful experimental model in which to study how unique tissue types are specified from multipotent founder cell populations. The second thoracic segment limb primordium gives rise to three structures: the wing imaginal disc, the leg imaginal disc, and a larval mechanosensory structure called Keilin's organ. We report that most of the limb primordium arises within neurogenic ectoderm and demonstrate that the neural and imaginal components of the primordium have distinct developmental potentials. We also provide the first analysis of the genetic pathways that subdivide the progenitor cell population into uniquely imaginal and neural identities. In particular, we demonstrate that the imaginal gene escargot represses Keilin's organ fate and that Keilin's organ is specified by Distal-less in conjunction with the downstream achaete-scute complex. This specification involves both the activation of the neural genes cut and couch potato and the repression of escargot. In the absence of achaete-scute complex function, cells adopt mixed identities and subsequently die. We propose that central cells of the primordium previously thought to contribute to the distal leg are Keilin's organ precursors, while both proximal and distal leg precursors are located more peripherally and within the escargot domain. Developmental Dynamics 232:801-816, 2005. © 2005 Wiley-Liss, Inc.