The segregation of neural and epidermal progenitors in Drosophila requires the activity of transcription factors encoded by the proneural genes and the genes of the E(SPL)-C. Persistent expression of two genes of the E(SPL)-C suppresses neural development. Embryos exhibit conspicuous central neural hypoplasia and lack sensory organs; imaginal sensory organs are also affected. Suppression of neural development is associated with suppression of the activity of proneural genes. DNA binding is not essential for this effect. Large cells with characteristics of neuroblasts segregate normally in embryos, but these cells fail to express various markers, and the segregated cells and/or their progeny eventually die. These findings indicate that proneural and E(spl) proteins exert antagonistic functions.