Genes of the spalt family encode nuclear zinc finger proteins. In Drosophila melanogaster, they are necessary for the establishment of head/trunk identity, correct tracheal migration and patterning of the wing imaginal disc. Spalt proteins display a predominant pattern of expression in the nervous system, not only in Drosophila but also in species of fish, mouse, frog and human, suggesting an evolutionarily conserved role for these proteins in nervous system development. Here we show that Spalt works as a cell fate switch between two EGFR-induced cell types, the oenocytes and the precursors of the pentascolopodial organ in the embryonic peripheral nervous system. We show that removal of spalt increases the number of scolopodia, as a result of extra secondary recruitment of precursor cells at the expense of the oenocytes. In addition, the absence of spalt causes defects in the normal migration of the pentascolopodial organ. The dual function of spalt in the development of this organ, recruitment of precursors and migration, is reminiscent of its role in tracheal formation and of the role of a spalt homologue, sem-4, in the Caenorhabditis elegans nervous system.