Variable expressivity of mutant phenotypes in genetically identical individuals is a phenomenon widely reported but poorly understood. For example, mutations in the gene encoding the transcription factor ALR-1 in Caenorhabditis elegans result in variable touch receptor neuron (TRN) function. Using single-molecule in situ hybridization, we demonstrate that this phenotypic variability reflects enhanced variability in the expression of the selector gene mec-3, which is needed, together with unc-86, for the differentiation of the TRNs. In a yeast expression system, ALR-1 enhances MEC-3/UNC-86-dependent transcription from the mec-3 promoter, showing that ALR-1 can enhance bulk mec-3 expression. We show that, due to stochastic fluctuations, autoregulation of mec-3 is not sufficient for TRN differentiation; ALR-1 provides a second positive feedback loop that increases mec-3 expression, by restricting variability, and thus ensures TRN differentiation. Our results link fluctuations in gene expression to phenotypic variability, which is seen in many mutant strains, and provide an explicit demonstration of how variable gene expression can be curtailed in developing cells to ensure their differentiation. Because ALR-1 and similar proteins (Drosophila Aristaless and human ARX) are needed for the expression of other transcription factors, we propose that proteins in this family may act to ensure differentiation more generally.