The aim of this study was to establish a cellular system to investigate the requirement for cell surface and diffusible molecules in the differentiation of fetal mesencephalic cells toward the dopamine lineage. Toward this end, we immortalized rat embryonic day 14 (E14) mesencephalon with a regulatable retroviral vector encoding v-myc. The stably transduced cells were pooled and designated as VME14 cells. VME14 cells proliferated rapidly, stopped proliferating, extended processes, and expressed GFAP after suppression of the v-myc expression with tetracycline, suggesting that VME14 cells differentiated into glial cells. Dissociated cells derived from the E11 rat mesencephalon gave rise to only a small number of tyrosine hydroxylase (TH)-positive neurons. However, when grown on a monolayer of the differentiated VME14 cells, a significantly higher number of cells differentiated into TH-positive neurons. VME14 cells were transduced with the secreted N-terminal cleavage product of the Sonic hedgehog gene (SHH-N), an inducer of mesencephalic dopaminergic neurons. This monoclonal, SHH-N-overexpressing cell line further enhanced dopaminergic differentiation of E11 rat mesencephalon cells. Thus, SHH-N and signals derived from fetal mesencephalic glia act cooperatively to facilitate dopaminergic differentiation. These fetal mesencephalon-derived cell lines will provide tools for the study of signals involved in dopaminergic differentiation.