In this work we describe a gene regulatory network consisting of three transcription factors- Prospero (Pros), D-Pax2/Shaven (Sv) and Delilah/Taxi (Dei/Tx)- that dictates two alternative differentiation programs within the proprioceptive lineage in Drosophila. D-Pax2 and Pros control the differentiation of cap versus scolopale cells in the chordotonal organ lineage by, respectively, activating and repressing the transcription of dei. Normally, D-Pax2 activates the expression of dei in the cap cell but is unable to do so in the scolopale cell where Pros is co-expressed. If D-Pax2 activity is lost, the cap cell fails to express dei as well as additional proteins, such as αTub85E, that characterize a fully differentiated cap cell. In contrast, if Pros activity is lost, dei is ectopically expressed in the scolopale cell that, as a consequence, adopts some cap cell features, including the expression of αTub85E. We further show that D-Pax2 and Pros exert their effects on dei transcription via a 262 bp chordotonal-specific regulatory module (deiChO-262) in which two D-Pax2- and three Pros-binding sites were identified experimentally. When this regulatory element was removed from the fly genome, the cap- and ligament-specific expression of dei was lost. Ectopic expression of D-Pax2, or the elimination of pros activity, did not lead to upregulation of dei in the scolopale cell in the absence of the D-Pax2-responsive deiChO-262 enhancer. Finally, we show that the regulation of dei expression via the D-Pax2/Pros-responsive element is critical for chordotonal organ functionality and coordinated larval locomotion.