In the mesoderm of Drosophila embryos, a defined number of cells segregate as progenitors of individual body wall muscles. Progenitors and their progeny founder cells display lineage-specific expression of transcription factors but the mechanisms that regulate their unique identities are poorly understood. Here we show that the homeobox genes ladybird early and ladybird late are expressed in only one muscle progenitor and its progeny: the segmental border muscle founder cell and two precursors of adult muscles. The segregation of the ladybird-positive progenitor requires coordinate action of neurogenic genes and an interplay of inductive Hedgehog and Wingless signals from the overlying ectoderm. Unlike so far described progenitors but similar to the neuroblasts, the ladybird-positive progenitor undergoes morphologically asymmetric division. We demonstrate that the ectopic ladybird expression is sufficient to change the identity of a subset of progenitor/founder cells and to generate an altered pattern of muscle precursors. When ectopically expressed, ladybird transforms the identity of neighbouring, Krüppel-positive progenitors leading to the formation of giant segmental border muscles and supernumerary precursors of lateral adult muscles. In embryos lacking ladybird gene function, specification of two ladybird-expressing myoblast lineages is affected. The segmental border muscles do not form or have abnormal shapes and insertion sites while the number of lateral precursors of adult muscles is dramatically reduced. Altogether our results provide new insights into the genetic control of diversification of muscle precursors and indicate a further similarity between the myogenic and neurogenic pathways.