The adult ovaries and testes contain several specialized somatic cell types that support the differentiation of germ cells into mature gametes. Each of these cell types arise from mesodermal cells that constitute the embryonic gonad. To explore the mechanisms governing the development and differentiation of these cells, we focus on the formation of the gonad during Drosophila development. Using markers for the precursors of the somatic cells of the gonad, we identify discrete steps in the development of the gonad. Our results suggest the existence of different populations of gonadal precursors at early stages in gonadogenesis that represent precursors of cell types found within the adult gonad. The functions of the homeotic genes abdominal A and Abdominal B are required for the development of gonadal precursors, however, here we provide evidence that each plays a distinct role. abd A activity alone specifies anterior gonadal precursor fates, whereas abd A and Abd B act together to specify a posterior subpopulation of gonadal precursors. Once specified, gonadal precursors born within posterior parasegments must move to the site of gonad formation. Here, we show that the proper regional identities, as established by homeotic gene function, are required for the arrest of migration at the correct position. Finally, our analysis of late stages of gonadogenesis suggests that abd A is required in a population of cells within parasegments 10 and 11 that partially ensheath the coalescing gonad. Mutations in iab-4 abolish expression of abd A within these cells, and as a result block the coalescence of the gonad.