We have identified a novel homeodomain gene, buttonless (btn), that is specifically expressed in 20 cells of a single type during Drosophila embryonic development. These cells, the dorsal median (DM) cells, are arranged as a single pair within each segment along the dorsal midline of the CNS. Distinctive features of the DM cells include a large cell body and a long thick process extending laterally to the muscle attachment site. In the absence of btn gene function the initial commitment to the DM cell fate is made but differentiation fails to occur and the DM cells are lost. The btn mutation thus specifically eliminates the DM cells, and this genetic ablation in turn reveals a requirement for DM cells as cellular cues for axonal guidance during transverse nerve outgrowth and bifurcation of the median nerve.