In Drosophila, the piRNA cluster, flamenco, produces most of the piRNAs (PIWI-interacting RNAs) that silence transposable elements in the somatic follicle cells during oogenesis. These piRNAs are thought to be processed from a long single-stranded precursor transcript. Here, we demonstrate that flamenco transcription is initiated from an RNA polymerase II promoter containing an initiator motif (Inr) and downstream promoter element (DPE) and requires the transcription factor, Cubitus interruptus. We show that the flamenco precursor transcript undergoes differential alternative splicing to generate diverse RNA precursors that are processed to piRNAs. Our data reveal dynamic processing steps giving rise to piRNA cluster precursors.