Hand genes encode basic helix-loop-helix transcription factors that are expressed in the developing gut, where their function is unknown. We now report that enteric Hand2 expression is limited to crest-derived cells, whereas Hand1 expression is restricted to muscle and interstitial cells of Cajal. Hand2 is developmentally regulated and is intranuclear in precursors but cytoplasmic in neurons. Neurons develop in explants from wild-type but not Hand2^-/- bowel, although,in both, crest-derived cells are present and glia arise. Similarly, small interfering RNA (siRNA) silencing of Hand2 in enteric crest-derived cells prevents neuronal development. Terminally differentiated enteric neurons do not develop after conditional inactivation of Hand2 in migrating crest-derived cells; nevertheless, conditional Hand2 inactivation does not prevent precursors from expressing early neural markers. We suggest that enteric neuronal development occurs in stages and that Hand2expression is required for terminal differentiation but not for precursors to enter the neuronal lineage.