A secreted signaling factor, Sonic hedgehog (Shh), has a crucial role in the generation of ventral cell types along the entire rostrocaudal axis of the neural tube. At caudal levels of the neuraxis, Shh is secreted by the notochord and floor plate during the period that ventral cell fates are specified. At anterior prosencephalic levels that give rise to the telencephalon, however, neither the prechordal mesoderm nor the ventral neural tube expresses Shh at the time that the overt ventral character of the telencephalon becomes evident. Thus, the precise role and timing of Shh signaling relevant to the specification of ventral telencephalic identity remains unclear. By analysing neural cell differentiation in chick neural plate explants we provide evidence that neural cells acquire molecular properties characteristic of the ventral telencephalon in response to Shh signals derived from the anterior primitive streak/Hensen’s node region at gastrula stages. Exposure of prospective anterior prosencephalic cells to Shh at this early stage is sufficient to initiate a temporal program of differentiation that parallels that of neurons generated normally in the medial ganglionic eminence subdivision of the ventral telencephalon.