The insect central nervous system (CNS) is composed of a brain and a chain of segmental ganglia; each hemiganglion contains about 1000 individually identifiable neurons. How is the enormous neuronal diversity and specificity generated? Neurons of a hemiganglion largely arise during embryogenesis from a stereotyped pattern of individually identified neuronal precursor cells, called neuroblasts (NBs). The transition from ectoderm to individual neurons thus involves two major steps: first, an undifferentiated ectodermal cell sheet produces the stereotyped pattern of 30 NBs per hemisegment; second, each of these NBs contributes a specific family of neuronal progeny to the developing CNS. We have used a laser microbeam to ablate individual cells in the grasshopper embryo in order to study the initial events of neuronal determination. In particular, how does a layer of apparently equivalent ectodermal cells produce a highly stereotyped pattern of unique NBs? Our results suggest the following mechanism for NB determination. (1) Cell interactions between the approximately 150 equivalent ectodermal cells of a hemisegment allow 30 cells to enlarge into NBs. (2) As these young NBs enlarge they inhibit adjacent ectodermal cells from becoming NBs; the adjacent cells then either differentiate into nonneuronal support cells or die. (3) Each NB is assigned a unique identity due to its position of enlargement within the neuroepithelium. (4) The NB then generates its characteristic family of neurons by an invariant cell lineage. Development of the insect CNS depends on cell interactions and positional cues to create a pattern of NBs, and then on cell lineage to restrict the fate of the NB progeny.