Each of 30 Drosophila larval somatic muscles has its individual shape, insertion sites and innervation. From the very beginning, the formation of individual muscles is controlled by a set of muscle identity genes. The four lateral transverse muscles (LT1-LT4) are thought to be specified by the combinatorial activity of Krüppel (Kr), apterous (ap) and muscle specific homeobox (msh) genes whilst the activity of the ladybird (lb) genes is required for proper formation of the neighbouring segmental border muscle (SBM). We have recently shown that ectopic expression of lb changes the identity of Kr-expressing lateral muscle precursors and recruits them to form enlarged or duplicated SBMs. Here we report that loss of msh function leads to a similar transformation resulting in the overproduction of SBMs. Inversely, in msh gain of function embryos, the prospective SBM myoblasts change their identity resulting in the formation of enlarged lateral transverse muscles. These data indicate a key role for the msh and lb genes in the specification and diversification of myoblast lineages from the lateral domain, and reveal a plasticity of cell fate within the somatic mesoderm of Drosophila.