E proteins are a special class of basic helix-loop-helix (bHLH) proteins that heterodimerize with many bHLH activators to regulate developmental decisions, such as myogenesis and neurogenesis. Daughterless (Da) is the sole E protein in Drosophila and is ubiquitously expressed. We have characterized two transcription activation domains (TADs) in Da, called activation domain 1 (AD1) and loop-helix (LH), and have evaluated their roles in promoting peripheral neurogenesis. In this context, Da heterodimerizes with proneural proteins, such as Scute (Sc), which is dynamically expressed and also contributes a TAD. We found that either one of the Da TADs in the Da/Sc complex is sufficient to promote neurogenesis, whereas the Sc TAD is incapable of doing so. Besides its transcriptional activation role, the Da AD1 domain serves as an interaction platform for E(spl) proteins, bHLH-Orange family repressors which antagonize Da/Sc function. We show that the E(spl) Orange domain is needed for this interaction and strongly contributes to the antiproneural activity of E(spl) proteins. We present a mechanistic model on the interplay of these bHLH factors in the context of neural fate assignment.