The retinal basal glia (RBG) is a group of glia that migrates from the optic stalk into the third instar larval eye disc while the photoreceptor cells (PR) are differentiating. The RBGs are grouped into three major classes based on molecular and morphological characteristics: surface glia (SG), wrapping glia (WG) and carpet glia (CG). The SGs migrate and divide. The WGs are postmitotic and wraps PR axons. The CGs have giant nucleus and extensive membrane extension that each covers half of the eye disc. In this study, we used lineage tracing methods to determine the lineage relationships among these glia subtypes and the temporal profile of the lineage decisions for RBG development. We found that the CG lineage segregated from the other RBG very early in the embryonic stage. It has been proposed that the SGs migrate under the CG membrane, which prevented SGs from contacting with the PR axons lying above the CG membrane. Upon passing the front of the CG membrane, which is slightly behind the morphogenetic furrow that marks the front of PR differentiation, the migrating SG contact the nascent PR axon, which in turn release FGF to induce SGs' differentiation into WG. Interestingly, we found that SGs are equally distributed apical and basal to the CG membrane, so that the apical SGs are not prevented from contacting PR axons by CG membrane. Clonal analysis reveals that the apical and basal RBG are derived from distinct lineages determined before they enter the eye disc. Moreover, the basal SG lack the competence to respond to FGFR signaling, preventing its differentiation into WG. Our findings suggest that this novel glia-to-glia differentiation is both dependent on early lineage decision and on a yet unidentified regulatory mechanism, which can provide spatiotemporal coordination of WG differentiation with the progressive differentiation of photoreceptor neurons.