The Drosophila heart consists of two major cell types: cardioblasts, which form the contractile tube of the heart; and pericardial cells, which flank the cardioblasts and are thought to filter and detoxify the blood or hemolymph of the fly. We present the completion of the entire cell lineage of all heart cells. Notably, we detect a previously unappreciated distinction between the lineages of heart cells located in the posterior seven segments relative to those located more anteriorly. Using a genetic screen, we have identified the ETS-transcription factor pointed as a key regulator of cardioblast and pericardial cell fates in the posterior seven segments of the heart. In this domain, pointed promotes pericardial cell development and opposes cardioblast development. We find that this function of pointed is carried out primarily if not exclusively by the pointedP2 isoform and, that in this context, pointedP2 may act independently of Ras/MAPK pathway activity. We go on to show that the GATA transcription factor pannier acts early in dorsal mesoderm development to promote the development of the cardiac mesoderm and thus all heart cells. Finally, we demonstrate that pannier acts upstream of pointed in a developmental pathway in which pannier promotes cardiac mesoderm formation, and pointed acts subsequently in this domain to distinguish between cardioblast and pericardial cell fates.