Asymmetric stem cell division balances maintenance of the stem cell pool and generation of diverse cell types by simultaneously allowing one daughter progeny to maintain a stem cell fate and its sibling to acquire a progenitor cell identity. A progenitor cell possesses restricted developmental potential, and defects in the regulation of progenitor cell potential can directly impinge on the maintenance of homeostasis and contribute to tumor initiation. Despite their importance, the molecular mechanisms underlying the precise regulation of restricted developmental potential in progenitor cells remain largely unknown. We used the type II neural stem cell (neuroblast) lineage in Drosophila larval brain as a genetic model system to investigate how an intermediate neural progenitor (INP) cell acquires restricted developmental potential. We identify the transcription factor Klumpfuss (Klu) as distinguishing a type II neuroblast from an INP in larval brains. klu functions to maintain the identity of type II neuroblasts, and klu mutant larval brains show progressive loss of type II neuroblasts due to premature differentiation. Consistently, Klu protein is detected in type II neuroblasts but is undetectable in immature INPs. Misexpression of klu triggers immature INPs to revert to type II neuroblasts. In larval brains lacking brain tumor function or exhibiting constitutively activated Notch signaling, removal of klu function prevents the reversion of immature INPs. These results led us to propose that multiple mechanisms converge to exert precise control of klu and distinguish a progenitor cell from its sibling stem cell during asymmetric neuroblast division.