Most of the cells in the embryonic peripheral nervous system (PNS) of Drosophila are born in their final location. One known exception is the group of lateral chordotonal organs (lch5) whose precursors form in a dorsal position, yet the mature organs are located in the lateral PNS cluster. Mutations in the u-turn (ut) locus perturb the localization of lch5 neurons and result in a 'dorsal chordotonals' phenotype. We show that ut is allelic to ventral veinless (vvl), also known as drifter. VVL, a POU-domain transcription factor, has been shown to participate in the development of tracheae and CNS in the embryo, and in wing development in the adult; however, its role in PNS development has not been described. Characterization of the 'dorsal chordotonals' phenotype of vvl mutant embryos revealed that in the absence of VVL, cell fates within the lch5 lineage are determined properly and the entire organ is misplaced. Based on the positions of lch5 cells relative to each other in mutant embryos, and in normal embryos at different developmental stages, we propose a two-step model for lch5 localization. lch5 organs must first rotate to assume a correct polarity and are then stretched ventrally to their final position. In this process, VVL function is required in the ectoderm and possibly in the lch5 organs too. VVL is also expressed in developing external sensory organs in the embryo and in the adult. In the embryo, loss of VVL function results in increased apoptosis in specific es organs. Analysis of vvl mutant clones in adults revealed a requirement for VVL in the control of cell number within the bristle lineage.