Distinct classes of neural cells differentiate at specific locations within the embryonic vertebrate nervous system. To define the cellular mechanisms that control the identity and pattern of neural cells we have used a combination of functional assays and antigenic markers to examine the differentiation of cells in the developing spinal cord and hindbrain in vivo and in vitro. Our results suggest that a critical step in the dorsoventral patterning of the embryonic CNS is the differentiation of a specialized group of midline neural cells, termed the floor plate, in response to local inductive signals from the underlying notochord. The floor plate and notochord appear to control the pattern of cell types that appear along the dorsoventral axis of the neural tube. The fate of neuroepithelial cells in the ventral neural tube may be defined by cell position with respect to the ventral midline and controlled by polarizing signals that originate from the floor plate and notochord.