Specifying multiple cell types from a population of initially equivalent cells is a fundamental process in the development of all multicellular organisms. Neural development in the fruit fly Drosophila melanogaster provides an excellent venue in which to examine mechanisms of cell fate specification. Inhibitory cell-cell interactions mediated by genes of the Notch-Delta signaling pathway govern the selection of neural and epidermal fates among cells with equivalent developmental potential in a process termed lateral inhibition. Recent data on the roles of genes such as Notch, Delta, and kuzbanian warrant a rethinking of the lateral inhibition model. Furthermore, evidence for a positive signaling pathway promoting the neural fate among equivalent cells suggests that this mechanism acts in addition to lateral inhibition to specify cell fate. A balance of opposing signals may be necessary to correctly partition cells of different types from an initially homogeneous population of cells.