Dopaminergic neurons play important roles in animal behavior, including motivation, reward and locomotion. The Drosophila dopaminergic H-cell interneuron is an attractive system for studying the genetics of neural development because analysis is focused on a single neuronal cell type. Here we provide a mechanistic understanding of how MP3, the precursor to the H-cell, forms and acquires its identity. We show that the gooseberry/gooseberry-neuro (gsb/gsb-n) transcription factor genes act to specify MP3 cell fate. It is proposed that single-minded commits neuroectodermal cells to a midline fate, followed by a series of signaling events that result in the formation of a single gsb(+)/gsb-n(+) MP3 cell per segment. The wingless signaling pathway establishes a midline anterior domain by activating expression of the forkhead transcription factors sloppy paired 1 and sloppy paired 2. This is followed by hedgehog signaling that activates gsb/gsb-n expression in a subgroup of anterior cells. Finally, Notch signaling results in the selection of a single MP3, with the remaining cells becoming midline glia. In MP3, gsb/gsb-n direct H-cell development, in large part by activating expression of the lethal of scute and tailup H-cell regulatory genes. Thus, a series of signaling and transcriptional events result in the specification of a unique dopaminergic precursor cell. Additional genetic experiments indicate that the molecular mechanisms that govern MP3/H-cell development might also direct the development of non-midline dopaminergic neurons.