In Drosophila, cell-fate determination of all neuroectoderm-derived glial cells depends on the transcription factor Glial cells missing (GCM), which serves as a binary switch between the neuronal and glial cell fates. Because the expression of GCM is restricted to the early phase of glial development, other factors must be responsible for the terminal differentiation of glial cells. Expression of three transcription factors, Reversed Polarity (REPO), Tramtrack p69 (TTK69) and PointedP1 (PNTP1), is induced by GCM in glial cells. REPO is a paired-like homeodomain protein, expressed exclusively in glial cells, and is required for the migration and differentiation of embryonic glial cells. To understand how REPO functions in glial terminal differentiation, we have analyzed the mechanism of gene regulation by REPO. We show that REPO can act as a transcriptional activator through the CAATTA motif in glial cells, and define three genes whose expression in vivo depends on REPO function. In different types of glial cells, REPO can act alone, or cooperate with either TTK69 or PNTP1 to regulate different target genes. Coordination of target gene expression by these three transcription factors may contribute to the diversity of glial cell types. In addition to promoting glial differentiation, we found that REPO is also necessary to suppress neuronal development, cooperating with TTK69. We propose that REPO plays a key role in both glial development and diversification.