Animals sense their chemical environment using multiple chemosensory neuron types, each of which exhibits characteristic response properties. The chemosensory neurons of the nematode Caenorhabditis elegans provide an excellent system in which to explore the developmental mechanisms giving rise to this functional diversity. In this review, we discuss the principles underlying the patterning, generation, differentiation, and diversification of chemosensory neuron subtypes in C. elegans. Current knowledge of the molecular mechanisms underlying each of these individual steps is derived from work in different model organisms. It is essential to describe the complete developmental pathways in each organism to determine whether functional diversification in chemosensory systems is achieved via conserved or novel mechanisms. Such a complete description may be possible in C. elegans.