Spatial arrangement of different neuron types within a territory is essential to neuronal development and function. How development of different neuron types is coordinated for spatial coexistence is poorly understood. In Drosophila, dendrites of four classes of dendritic arborization (C1-C4da) neurons innervate overlapping receptive fields within the larval epidermis. These dendrites are intermittently enclosed by epidermal cells, with different classes exhibiting varying degrees of enclosure. The role of enclosure in neuronal development and its underlying mechanism remain unknown. We show that the membrane-associated protein Coracle acts in C4da neurons and epidermal cells to locally restrict dendrite branching and outgrowth by promoting enclosure. Loss of C4da neuron enclosure results in excessive branching and growth of C4da neuron dendrites and retraction of C1da neuron dendrites due to local inhibitory interactions between neurons. We propose that enclosure of dendrites by epidermal cells is a developmental mechanism for coordinated innervation of shared receptive fields.