The CNS midline cells, specified by the single-minded (sim) gene, are required for the proper patterning of the ventral CNS and epidermis, which are derived from the Drosophila ventral neuroectoderm. Defects in the sim mutant are characterized by the loss of the gene expression, which is required for the proper formation of the ventral neurons and epidermis, and by a decrease in the spacing of longitudinal and commissural axon tracks. Molecular and cellular mechanisms for these defects were analyzed to elucidate the precise role of the CNS midline cells in proper patterning of the ventral neuroectoderm during embryonic neurogenesis. These analyses showed that the ventral neuroectoderm in the sim mutant fails to carry out its proper formation and characteristic cell division cycle. This resulted in the loss of the dividing neuroectodermal cells that are located ventral to the CNS midline. The CNS midline cells are also required for the cell cycle-independent expression of the neural and epidermal markers. This indicates that the CNS midline cells are essential for the establishment and maintenance of the ventral epidermal and neuronal cell lineage by cell-cell interaction. On the other hand, the CNS midline cells do not cause extensive cell death in the ventral neuroectoderm. This study indicates that the CNS midline cells play important roles in the coordination of the proper cell cycle progression and the correct identity determination of the adjacent ventral neuroectoderm along the dorsoventral axis.