Neurons display a striking degree of functional and morphological diversity, and the developmental mechanisms that underlie diversification are of significant interest for understanding neural circuit assembly and function. We find that the morphology of Drosophila sensory neurons is diversified through a series of suppressive transcriptional interactions involving the POU domain transcription factors Pdm1 (Nubbin) and Pdm2, the homeodomain transcription factor Cut, and the transcriptional regulators Scalloped and Vestigial. Pdm1 and Pdm2 are expressed in a subset of proprioceptive sensory neurons and function to inhibit dendrite growth and branching. A subset of touch receptors show a capacity to express Pdm1/2, but Cut represses this expression and promotes more complex dendritic arbors. Levels of Cut expression are diversified in distinct sensory neurons by selective expression of Scalloped and Vestigial. Different levels of Cut impact dendritic complexity and, consistent with this, we show that Scalloped and Vestigial suppress terminal dendritic branching. This transcriptional hierarchy therefore acts to suppress alternative morphologies to diversify three distinct types of somatosensory neurons.