Mutations in the human and mouse PTF1A/Ptf1a genes result in permanent diabetes mellitus and cerebellar agenesis. We show that Ptf1a is present in precursors to GABAergic neurons in spinal cord dorsal horn as well as the cerebellum. A null mutation in Ptf1a reveals its requirement for the dorsal horn GABAergic neurons. Specifically, Ptf1a is required for the generation of early-born (dI4, E10.5) and late-born (dIL^A, E12.5)dorsal interneuron populations identified by homeodomain factors Lhx1/5 and Pax2. Furthermore, in the absence of Ptf1a, the dI4 dorsal interneurons trans-fate to dI5 (Lmx1b⁺), and the dIL^A to dIL^B (Lmx1b⁺;Tlx3⁺). This mis-specification of neurons results in a complete loss of inhibitory GABAergic neurons and an increase in the excitatory glutamatergic neurons in the dorsal horn of the spinal cord by E16.5. Thus, Ptf1a function is essential for GABAergic over glutamatergic neuronal cell fates in the developing spinal cord, and provides an important genetic link between inhibitory and excitatory interneuron development.