The differentiation of Drosophila embryonic blood cell progenitors (prohemocytes) into plasmatocytes or crystal cells is controlled by lineage-specific transcription factors. The related proteins Glial cells missing (GCM) and GCM2 control plasmatocyte development, whereas the RUNX factor Lozenge (LZ) is required for crystal cell differentiation. We have investigated the segregation process that leads to the formation of these two cell types, and the interplay between LZ and GCM/GCM2. We show that, surprisingly, gcm is initially expressed in all prohemocytes but is rapidly downregulated in the anterior-most row of prohemocytes, which then initiates lz expression. However, the lz+ progenitors constitute a mixed-lineage population whose fate depends on the relative levels of LZ and GCM/GCM2. Notably, we demonstrate that GCM/GCM2 play a key role in controlling the size of the crystal cell population by inhibiting lz activation and maintenance. Furthermore, we show that prohemocytes are bipotent progenitors, and that downregulation of gcm/gcm2 is required for lz-induced crystal cell formation. These results provide new insight into the mechanisms controlling Drosophila hematopoiesis and establish the basis for an original model for the resolution of the choice of blood cell fate.