The Drosophila CNS develops from three columns of neuroectodermal cells along the dorsoventral (DV) axis: ventral, intermediate, and dorsal. In this and the accompanying paper, we investigate the role of two homeobox genes, vnd and ind, in establishing ventral and intermediate cell fates within the Drosophila CNS. During early neurogenesis, Vnd protein is restricted to ventral column neuroectoderm and neuroblasts; later it is detected in a complex pattern of neurons. We use molecular markers that distinguish ventral, intermediate, and dorsal column neuroectoderm and neuroblasts, and a cell lineage marker for selected neuroblasts, to show that loss of vnd transforms ventral into intermediate column identity and that specific ventral neuroblasts fail to form. Conversely, ectopic vnd produces an intermediate to ventral column transformation. Thus, vnd is necessary and sufficient to induce ventral fates and repress intermediate fates within the Drosophila CNS. Vertebrate homologs of vnd (Nkx2.1 and 2.2) are similarly expressed in the ventral CNS, raising the possibility that DV patterning within the CNS is evolutionarily conserved.