The olfactory system throughout the animal kingdom is characterized by a large number of highly specialized neuronal cell types. Olfactory receptor neurons (ORNs) in the peripheral sensory epithelium display two main differentiation features: the selective expression of a single odorant receptor out of a large genomic repertoire of receptor genes and the synaptic connection to a single type of relay neuron in the primary olfactory CNS target area. In the mouse olfactory system, odorant receptors themselves play a central role in the coordination of both types of ORN differentiation. The olfactory system of Drosophila, although similar in structural and functional organization compared to mammals, does not seem to involve odorant receptors in the selection of OR gene expression and target cell recognition, suggesting distinct developmental control mechanisms. In this chapter we summarize recent findings in Drosophila of how gene networks regulate ORN specification and differentiation in the peripheral sensory organs as well as how different cellular interactions and patterning signals organize the class-specific axonal and dendritic connectivity in the CNS target area.