Developmentally regulated cell cycle arrest is a fundamental feature of neurogenesis, whose significance is poorly understood. During Drosophila sensory organ (SO) development, primary progenitor (pI) cells arrest in G2 phase for precisely defined periods. Upon re-entering the cell cycle in response to developmental signals, these G2-arrested precursor cells divide and generate specialized neuronal and non-neuronal cells. To study how G2 phase arrest affects SO lineage specification, we forced pI cells to divide prematurely. This produced SOs with normal neuronal lineages but supernumerary non-neuronal cell types because prematurely dividing pI cells generate a secondary pI cell that produces a complete SO and an external precursor cell that undergoes amplification divisions. pI cells are therefore able to undergo self-renewal before transit to a terminal mode of division. Regulation of G2 phase arrest thus serves a dual role in SO development: preventing progenitor self-renewal and synchronizing cell division with developmental signals. Cell cycle arrest in G2 phase temporally coordinates the precursor cell proliferation potential with terminal cell fate determination to ensure formation of organs with a normal set of sensory cells.