The central neuroendocrine system in the Drosophila brain includes two centers, the pars intercerebralis (PI) and pars lateralis (PL). The PI and PL contain neurosecretory cells (NSCs) which project their axons to the ring gland, a complex of peripheral endocrine glands flanking the aorta. We present here a developmental and genetic study of the PI and PL. The PI and PL are derived from adjacent neurectodermal placodes in the dorso-medial head. The placodes invaginate during late embryogenesis and become attached to the brain primordium. The PI placode and its derivatives express the homeobox gene Dchx1 and can be followed until the late pupal stage. NSCs labeled by the expression of Drosophila insulin-like peptide (Dilp), FMRF, and myomodulin form part of the Dchx1 expressing PI domain. NSCs of the PL can be followed throughout development by their expression of the adhesion molecule FasII. Decapentaplegic (Dpp), secreted along the dorsal midline of the early embryo, inhibits the formation of the PI and PL placodes; loss of the signal results in an unpaired, enlarged placodeal ectoderm. The other early activated signaling pathway, EGFR, is positively required for the maintenance of the PI placode. Of the dorso-medially expressed head gap genes, only tailless (tll) is required for the specification of the PI. Absence of the corpora cardiaca, the endocrine gland innervated by neurosecretory cells of the PI and PL, does not affect the formation of the PI/PL, indicating that inductive stimuli from their target tissue are not essential for early PI/PL development.