Both intrinsic and extrinsic factors are known to regulate sibling cell fate. Here we describe a novel mechanism for the asymmetric localization of a transcription factor to one daughter cell at mitosis. The Drosophila CNS develops from asymmetrically dividing neuroblasts, which give rise to a large neuroblast and a smaller ganglion mother cell (GMC). The prospero gene encodes a transcription factor necessary for proper GMC gene expression. We show that the prospero protein is synthesized in the neuroblast where it is localized to the F-actin cell cortex. At mitosis, prospero is asymmetrically localized to the budding GMC and excluded from the neuroblast. After cytokinesis, prospero is translocated from the GMC cortex into the nucleus. Asymmetric cortical localization of prospero in neuroblasts requires entry into mitosis; it does not depend on numb function. prospero is also observed in cortical crescents in dividing precursors of the peripheral nervous system and adult midgut. The asymmetric cortical localization of prospero at mitosis is a mechanism for rapidly establishing distinct sibling cell fates in the CNS and possibly other tissues.