The stomatogastric nervous system (SNS) of Drosophila is a simply organized neural circuitry that innervates the anterior enteric system. Unlike the central and the peripheral nervous systems, the SNS derives from a compact epithelial anlage in which three invagination centers, each giving rise to an invagination fold headed by a tip cell, are generated. Tip cell selection involves lateral inhibition, a process in which Wingless (Wg) activity adjusts the range of Notch signaling. Here we show that RTK signaling mediated by the Drosophila homolog of the epidermal growth factor receptor, DER, plays a key role in two consecutive steps during early SNS development. Like Wg, DER signaling participates in adjusting the range of Notch-dependent lateral inhibition during tip cell selection. Subsequently, tip cells secrete the DER ligand Spitz and trigger local RTK signaling, which initiates morphogenetic movements resulting in the tip cell-directed invaginations within the SNS anlage.