In the nervous system, glial cells need to be specified from a set of progenitor cells. In the developing Drosophila eye, perineurial glia proliferate and differentiate as wrapping glia in response to a neuronal signal conveyed by the FGF receptor pathway. To unravel the underlying transcriptional network we silenced all genes encoding predicted DNA-binding proteins in glial cells using RNAi. Dref and other factors of the TATA box-binding protein-related factor 2 (TRF2) complex were previously predicted to be involved in cellular metabolism and cell growth. Silencing of these genes impaired early glia proliferation and subsequent differentiation. Dref controls proliferation via activation of the Pdm3 transcription factor, whereas glial differentiation is regulated via Dref and the homeodomain protein Cut. Cut expression is controlled independently of Dref by FGF receptor activity. Loss- and gain-of-function studies show that Cut is required for glial differentiation and is sufficient to instruct the formation of membrane protrusions, a hallmark of wrapping glial morphology. Our work discloses a network of transcriptional regulators controlling the progression of a naïve perineurial glia towards the fully differentiated wrapping glia.