Elucidating mechanisms that differentiate motor neurons from interneurons are fundamental to understanding CNS development. Here we demonstrate that within the Drosophila NB 7-3/serotonergic lineage, different levels of Zfh-1 are required to specify unique properties of both motor neurons and interneurons. We present evidence that Zfh-1 is induced by Notch signaling and suppressed by the transcription factor Eagle. The antagonistic regulation of zfh-1 by Notch and Eagle results in Zfh-1 being expressed at low levels in the NB 7-3 interneurons and at higher levels in the NB 7-3 motor neurons. Furthermore, we present evidence that the induction of Zfh-1 by Notch occurs independently from canonical Notch signaling. We present a model where the differentiation of cell fates within the NB 7-3 lineage requires both canonical and non-canonical Notch signaling. Our observations on the regulation of Zfh-1 provide a new approach for examining the function of Zfh-1 in motor neurons and larval locomotion.