Drosophila discs-large (dlg) mutants exhibit multiple developmental abnormalities, including severe defects in neuronal differentiation and synaptic structure and function. These defects have been ascribed to the loss of a single gene product, Dlg-A, a scaffold protein thought to be expressed in many cell types. Here, we describe that additional isoforms arise as a consequence of different transcription start points and alternative splicing of dlg. At least five different dlg gene products are predicted. We identified a subset of dlg-derived cDNAs that include novel exons encoding a peptide homologous to the N terminus of the mammalian protein SAP97/hDLG (S97N). Dlg isoforms containing the S97N domain are expressed at larval neuromuscular junctions and within the CNS of both embryos and larvae but are not detectable in epithelial tissues. Strong hypomorphic dlg alleles exhibit decreased expression of S97N, which may account for neural-specific aspects of the pleiomorphic dlg mutant phenotype. Selective inhibition of the expression of S97N-containing proteins in embryos by double-strand RNA leads to severe defects in neuronal differentiation and axon guidance, without overt perturbations in epithelia. These results indicate that the differential expression of dlg products correlates with distinct functions in non-neural and neural cells. During embryonic development, proteins that include the S97N domain are essential for proper neuronal differentiation and organization, acting through mechanisms that may include the adequate localization of cell fate determinants.