Distinct classes of motor neurons and ventral interneurons are generated by the graded signaling activity of Sonic hedgehog (Shh). Shh controls neuronal fate by establishing different progenitor cell populations in the ventral neural tube that are defined by the expression of Pax6 and Nkx2.2. Pax6 establishes distinct ventral progenitor cell populations and controls the identity of motor neurons and ventral interneurons, mediating graded Shh signaling in the ventral spinal cord and hindbrain.