Indirect development, in which embryogenesis gives rise to a larval form, requires that some cells retain developmental potency until they contribute to the different tissues in the adult, including the germ line, in a later, post-embryonic phase. In sea urchins, the coelomic pouches are the major contributor to the adult, but how coelomic pouch cells (CPCs) are specified during embryogenesis is unknown. Here we identify the key signaling inputs into the CPC specification network and show that the forkhead factor foxY is the first transcription factor specifically expressed in CPC progenitors. Through dissection of its cis-regulatory apparatus we determine that the foxY expression pattern is the result of two signaling inputs: first, Delta/Notch signaling activates foxY in CPC progenitors; second, Nodal signaling restricts its expression to the left side, where the adult rudiment will form, through direct repression by the Nodal target pitx2. A third signal, Hedgehog, is required for coelomic pouch morphogenesis and institution of laterality, but does not directly affect foxY transcription. Knockdown of foxY results in a failure to form coelomic pouches and disrupts the expression of virtually all transcription factors known to be expressed in this cell type. Our experiments place foxY at the top of the regulatory hierarchy underlying the specification of a cell type that maintains developmental potency.