A key question in developmental biology is how cellular differentiation is controlled during development. While transitions between trithorax-group (TrxG) and polycomb-group (PcG) chromatin states are vital for the differentiation of ES cells to multipotent stem cells, little is known regarding the role of chromatin states during development of the brain. Here we show that large-scale chromatin remodelling occurs during Drosophila neural development. We demonstrate that the majority of genes activated during neuronal differentiation are silent in neural stem cells (NSCs) and occupy black chromatin and a TrxG-repressive state. In neurons, almost all key NSC genes are switched off via HP1-mediated repression. PcG-mediated repression does not play a significant role in regulating these genes, but instead regulates lineage-specific transcription factors that control spatial and temporal patterning in the brain. Combined, our data suggest that forms of chromatin other than canonical PcG/TrxG transitions take over key roles during neural development.