Sonic hedgehog signaling controls the differentiation of motor neurons in the ventral neural tube, but the intervening steps are poorly understood. A differential screen of a cDNA library derived from a single Shh-induced motor neuron has identified a novel homeobox gene, MNR2, expressed by motor neuron progenitors and transiently by postmitotic motor neurons. The ectopic expression of MNR2 in neural cells initiates a program of somatic motor neuron differentiation characterized by the expression of homeodomain proteins, by neurotransmitter phenotype, and by axonal trajectory. Our results suggest that the Shh-mediated induction of a single transcription factor, MNR2, is sufficient to direct somatic motor neuron differentiation.