according to my understanding what you have to do is repeating the same logic that you did for drop down list 2 and nothing more...
protected void DropDownList1_SelectedIndexChanged(object sender, EventArgs e)
{
con.Open();
SqlCommand cmd = new SqlCommand("SELECT * FROM AddedItem where Item_Type='" + DropDownList1.SelectedItem.Text + "'", con);
dr = cmd.ExecuteReader();
DropDownList2.DataSource = dr;
DropDownList2.DataValueField = "Item_Name";
DropDownList2.DataBind();
DropDownList2.SelectedIndex = -1;
con.Close();
}
DropDownList1_SelectedIndexChanged
if not fired then set the drop down list property "autopostback= true"