Development of the central nervous system (CNS) involves the transformation of a two-dimensional epithelial sheet of uniform ectodermal cells, the neuroectoderm, into a highly complex three-dimensional structure consisting of a huge variety of different neural cell types. Characteristic numbers of each cell type become arranged in reproducible spatial patterns, which is a prerequisite for the establishment of specific functional contacts. The fruitfly Drosophila is a suitable model to approach the mechanisms controlling the generation of cell diversity and pattern in the developing CNS, as it allows linking of gene function to individually identifiable cells. This review addresses aspects of the formation and specification of neural stem cells (neuroblasts) in Drosophila in the light of recent studies on their segmental diversification. Developmental Dynamics 235:861–869, 2006. © 2005 Wiley-Liss, Inc.