The formation of the Drosophila embryonic gonad, involving the fusion of clusters of somatic gonadal precursor cells (SGPs) and their ensheathment of germ cells, provides a simple and genetically tractable model for the interplay between cells during organ formation. In a screen for mutants affecting gonad formation we identified a SGP cell autonomous role for Midline (Mid) and Longitudinals lacking (Lola). These transcriptional factors are required for multiple aspects of SGP behaviour including SGP cluster fusion, germ cell ensheathment and gonad compaction. The lola locus encodes more than 25 differentially spliced isoforms and we have identified an isoform specific requirement for lola in the gonad which is distinct from that in nervous system development. Mid and Lola work in parallel in gonad formation and surprisingly Mid overexpression in a lola background leads to additional SGPs at the expense of fat body cells. Our findings support the idea that although the transcription factors required by SGPs can ostensibly be assigned to those being required for either SGP specification or behaviour, they can also interact to impinge on both processes.