The arrival of retinal axons in the brain of Drosophila triggers the assembly of glial and neuronal precursors into a 'neurocrystalline' array of lamina synaptic 'cartridges'. Hedgehog, a secreted protein, is an inductive signal delivered by retinal axons for the initial steps of lamina differentiation. In the development of many tissues, Hedgehog acts in a signal relay cascade via the induction of secondary secreted factors. Here we show that lamina neuronal precursors respond directly to Hedgehog signal reception by entering S-phase, a step that is controlled by the Hedgehog-dependent transcriptional regulator Cubitus interruptus. The terminal differentiation of neuronal precursors and the migration and differentiation of glia appear to be controlled by other retinal axon-mediated signals. Thus retinal axons impose a program of developmental events on their postsynaptic field utilizing distinct signals for different precursor populations.