The ellipsoid body (EB) of the Drosophila central complex mediates sensorimotor integration and action selection for adaptive behaviours. Insights into its physiological function are steadily accumulating, however the developmental origin and genetic specification have remained largely elusive. Here we identify two stem cells in the embryonic neuroectoderm as precursor cells of neuronal progeny that establish EB circuits in the adult brain. Genetic tracing of embryonic neuroblasts ppd5 and mosaic analysis with a repressible cell marker identified lineage-related progeny as Pox neuro (Poxn)-expressing EB ring neurons, R1-R4. During embryonic brain development, engrailed function is required for the initial formation of Poxn-expressing ppd5-derived progeny. Postembryonic determination of R1-R4 identity depends on lineage-specific Poxn function that separates neuronal subtypes of ppd5-derived progeny into hemi-lineages with projections either terminating in the EB ring neuropil or the superior protocerebrum (SP). Poxn knockdown in ppd5-derived progeny results in identity transformation of engrailed-expressing hemi-lineages from SP to EB-specific circuits. In contrast, lineage-specific knockdown of engrailed leads to reduced numbers of Poxn-expressing ring neurons. These findings establish neuroblasts ppd5-derived ring neurons as lineage-related sister cells that require engrailed and Poxn function for the proper formation of EB circuitry in the adult central complex of Drosophila.