The tracheal (respiratory) system of Drosophila melanogaster is a branched network of epithelial tubes that ramifies throughout the body and transports oxygen to the tissues. It forms by a series of sequential branching events in each hemisegment from T2 to A8. Here we present a cellular and initial genetic analysis of the branching process. We show that although branching is sequential it is not iterative. The three levels of branching that we distinguish involve different cellular mechanisms of tube formation. Primary branches are multicellular tubes that arise by cell migration and intercalation; secondary branches are unicellular tubes formed by individual tracheal cells; terminal branches are subcellular tubes formed within long cytoplasmic extensions. Each level of branching is accompanied by expression of a different set of enhancer trap markers. These sets of markers are sequentially activated in progressively restricted domains and ultimately individual tracheal cells that are actively forming new branches. A clonal analysis demonstrates that branching fates are not assigned to tracheal cells until after cell division ceases and branching begins. We further show that the breathless FGF receptor, a tracheal gene required for primary branching, is also required to activate expression of markers involved in secondary branching and that the pointed ETS-domain transcription factor is required for secondary branching and also to activate expression of terminal branch markers. The combined morphological, marker expression and genetic data support a model in which successive branching events are mechanistically and genetically distinct but coupled through the action of a tracheal gene regulatory hierarchy.