We describe the dynamic process of abdominal segment generation in the milkweed bug Oncopeltus fasciatus. We present detailed morphological measurements of the growing germband throughout segmentation. Our data are complemented by cell division profiles and expression patterns of key genes, including invected and even-skipped as markers for different stages of segment formation. We describe morphological and mechanistic changes in the growth zone and in nascent segments during the generation of individual segments and throughout segmentation, and examine the relative contribution of newly formed versus existing tissue to segment formation. Although abdominal segment addition is primarily generated through the rearrangement of a pool of undifferentiated cells, there is nonetheless proliferation in the posterior. By correlating proliferation with gene expression in the growth zone, we propose a model for growth zone dynamics during segmentation in which the growth zone is functionally subdivided into two distinct regions: a posterior region devoted to a slow rate of growth among undifferentiated cells, and an anterior region in which segmental differentiation is initiated and proliferation inhibited.