The neural precursor cells (sensory organ precursor cell (SOP)) of the external sense organs of Drosophila melanogaster arise from proneural clusters, which are defined through the expression pattern of proneural genes such as the genes of the achaete-scute complex (AS-C). The activities of these genes enable each cell within a cluster to become the SOP. A selection process mediated by the Notch signalling pathway and Extramacrochaetae selects a defined number of cells within the proneural cluster to realise the SOP fate, while it redirects the rest to the epidermoblast fate. Here we report a new function required for SOP determination mediated by the zinc finger transcription factor Klumpfuss (Klu). Klu participates in a novel mechanism that appears to regulate the expression as well as the activity of the proneural proteins. Our analysis indicates that Klu is a repressor of transcription, which acts via a double-negative loop to promote SOP formation: it suppresses the expression of an unidentified antagonist of proneural activity. We present a detailed structure function analysis that identifies functionally important domains within Klu.