Empirical studies have demonstrated that electrical activity of the neuron can directly affect neurite outgrowth. In this paper, we study the possible implications of activity-dependent neurite outgrowth for neuronal morphology and network development, using a model in which initially disconnected cells organize themselves into a network under the influence of their intrinsic activity. A neuron is modelled as a neuritic field, the growth of which depends on its own level of activity, and neurons become connected when their fields overlap. In a purely excitatory network, we have previously demonstrated that activity-dependent outgrowth in combination with a neuronal response function with some form of firing threshold is sufficient to cause a transient overproduction (overshoot) in the number of connections or synapses. Here we show that overshoot still takes place in a network of excitatory and inhibitory cells, and can even be enhanced. With delayed development of inhibition the growth curve of the number of inhibitoryconnections no longer exhibits overshoot. An interesting emergent property of the model is that, solely as the result of simple outgrowth rules and cell interactions, the (dendritic) fields of the inhibitory cells tend to become smaller than those of the excitatory cells, even if both type of cells have the same outgrowth properties. Other consequences of the interactions among outgrowth, excitation and inhibition are that (i) the spatial distribution of inhibitory cells becomes important in determining the level of inhibition; (ii) pruning of connections can no longer take place if the network has grown without proper electrical activity for longer than a certain critical period; (iii) inhibitory cells, by inducing outgrowth, can help to connect different parts of a structure. Further, the model predicts that excitatory cell death will be accompanied by an increased neuritic field of surviving neurons (“compensatory sprouting”). The similarities of the model with findings in developing tissue cultures of dissociated cells are extensively discussed.