Olfactory neuropiles across different phyla organize into glomerular structures where afferents from a single olfactory receptor class synapse with uniglomerular projecting interneurons. In adult Drosophila, olfactory projection interneurons, partially instructed by the larval olfactory system laid down during embryogenesis, pattern the developing antennal lobe prior to the ingrowth of afferents. In vertebrates it is the afferents that initiate and regulate the development of the first olfactory neuropile. Here we investigate for the first time the embryonic assembly of the Drosophila olfactory network. We use dye injection and genetic labelling to show that during embryogenesis, afferent ingrowth pioneers the development of the olfactory lobe. With a combination of laser ablation experiments and electrophysiological recording from living embryos, we show that olfactory lobe development depends sequentially on contact-mediated and activity-dependent interactions and reveal an unpredicted degree of similarity between the olfactory system development of vertebrates and that of the Drosophila embryo. Our electrophysiological investigation is also the first systematic study of the onset and developmental maturation of normal patterns of spontaneous activity in olfactory sensory neurons, and we uncover some of the mechanisms regulating its dynamics. We find that as development proceeds, activity patterns change, in a way that favours information transfer, and that this change is in part driven by the expression of olfactory receptors. Our findings show an unexpected similarity between the early development of olfactory networks in Drosophila and vertebrates and demonstrate developmental mechanisms that can lead to an improved coding capacity in olfactory neurons.